Why self-managed super funds are half the size you think they are

Picture: istock

The widespread use of misleading “average” figures for the amount of money held by individual self-managed super funds is finally being challenged inside the industry.

Put simply, the average amount held in the nation’s million-plus SMSF funds is almost twice as high as the “median” – a statistically more reliable estimate of the midpoint in a range of numbers.

The average figures are skewed by the unique distribution of money inside SMSFs where a small portion of funds have exceptionally high levels of wealth with around two dozen SMSFs holding more than $100m each.

With the release this week of the latest SMSF statistics from the Australian Tax Office, the debate over tax concessions in super is stoked again as the ATO bulletin published an average figure for an SMSF fund at $1.3m.

However, the ATO separately lists the median figure for SMSFs – which strips out the small number of high rollers in the system. It turns out the median figure at $733,000 is close to half the more widely reported average number. The statistics represent the three months to June 30, 2020.

Even allowing for the improvement in fortunes for most super funds since the figures were published, the facts of the matter are that most SMSFs in Australia have a portfolio value closer to the median price of a house in Sydney or Melbourne (currently $842,000).

Superannuation specialist Meg Heffron, CEO at the Heffron Group, suggests that combining the new ATO figures with industry statistics from the recent Class Benchmark Reports puts the typical fund today at near $800,000 with most funds growing by around 5 per cent a year.

SMSFs have higher levels of cash and an older membership which means more people in pension mode, which explains why returns are lower than big super which has been managing between 6 and 9 per cent.

If the typical fund has $800,000 and gains 5 per cent a year that suggests a typical income of $40,000 a year.

However, the sector continues to struggle with a reputation for harbouring tax protected tycoons, most of whom established the foundation of enormous super wealth back when the Howard government welcomed huge cash amounts into super.

Superannuation specialist Meg Heffron, CEO at the Heffron Group, suggests that combining the new ATO figures with industry statistics puts the typical fund today at near $800,000. Picture: Hollie Adams

Today the maximum that can be contributed per annum into super pre-tax is $27,500, the maximum post-tax is $110,000. As Heffron told industry publication SMSF Adviser this week: “Will we see more and more mega SMSFs with more than $50m in assets? Probably not. These days it is much more difficult to create very large funds.”

All SMSF members operate under the same rules as anyone else in super – the maximum amount which can underpin a tax free income is $1.7m, the rest – if kept in super – is taxed at 15 per cent. The big difference is that they must also pay about $3000 in fees for the privilege of running their own fund on their own terms.

The trouble with the high rollers is not they have SMSFs, it is that they are in the super system. As Heffron says: “If things continue as they are I expect that there will be fewer mega SMSFs in two decades. But we may see an SMSF population where the median fund size continues to grow.”