SMSFs to bear the brunt of super shift

Self-managed funds are thriving but changes to super rules will hurt this group more than others in the community.

SMSF Association managing director and chief executive Andrea Slattery.

There are now more than one million Australians who rely on self-managed funds for their retirement. The actual number in the SMSF army last year was 1,049,840, covering 556,998 funds — up 10 per cent in two years. Self-managed funds want to control their money and are not prepared to pay high fees. On average, according to a survey by the Self Managed Superannuation Fund, Association, each self-managed fund member has $823,248 in their fund. That compares with $696,872 in 2014-15 — a rise of 18 per cent. The self-managed funds are doing well.

However, it should be emphasised that 75 per cent of self-managed superannuation members have account balances of less than $1 million. The SMSF survey shows there are a large number of “very high value outliers” with more than $10,000,000 in assets under management, which have “a slightly distortive effect” on the averages. The mean figure of amount per person was $443,969.

The survey, conducted by Rice Warner, highlights that it was the self-managed funds, and all those actually saving for retirement, who were targeted by the infamous “$10 million club” of public servants (those Commonwealth public servants who have pension entitlements worth $10m) who manoeuvred inexperienced ministers into smashing private sector superannuation in the budget.

The irony was that the $10m club will gain their pensions from the public purse (future taxpayers) whereas self-managed funds members are actively putting money aside for their retirement.

The budget’s disastrous retrospective $500,000 limit on tax paid contributions might have been successful but the one million people with self-managed funds made life totally miserable for so many Liberal politicians that it caused a backbench revolt.

The survey shows that people with self-managed funds invest really large sums in superannuation between the ages of 60 and 74 — it’s a pattern very different from other parts of the community.

Many will have had businesses that they sold or wound down. Others will have paid off their mortgage and educated their children making it time to inject money into superannuation.

The abandoned $500,000 tax paid or non-concessional cap would have significantly curtailed the ability of SMSF members to contribute to super in later years and reduced the balances they were able to accumulate.

The new proposals stop tax paid or non-concessional contributions once the fund reaches $1.6m, so it’s impossible to get a repeat of the $10m amounts that many have accumulated in self-managed funds unless they have a very profitable investment.

The 2016 Budget also imposed a $1.6m cap on the amount that can enjoy tax-free pension fund status.

Existing pension funds with more assets under management than the limit will be required to transfer the excess back into an accumulation account by July 1, 2017 and so will pay a 15 per cent tax on the income.

According to the survey, in 2015, 22.1 per cent of the sample of funds had assets over $1.6m.

Because self-managed funds are there to provide retirement income, it is no surprise that the SMSF population will be disproportionately affected by the proposed changes.