SMSFs: Fad or the future? Time to explore the modern SMSF and how the baton is being passed from Boomers to Millenials.
Superannuation is big business in Australia. At last count, more than $3 trillion of assets are held across all superannuation funds. A quarter of those assets are held by 1.1 million Aussies in Self Managed Super Funds SMSFs.
Despite the continual growth of SMSFs and the vast sums invested, commentators are continually writing obituaries about the death of SMSFs. No wonder with $30 billion in fee revenue annually.
Time to explore the modern SMSF and how the baton is being passed from Boomers to Millenials.
SMSF by the numbers
According to the latest ATO statistics through to 31 March 2021:
- 22,663 new SMSFs
- The most popular age bracket to establish an SMSF is between 35 to 44;
- The most common annual income range of new SMSF members is $100k to $150k;
- The median amount of assets an SMSF had in its first year was $280,961*
*Based on the last available data for the tax year ending 30 June 2019.
Although only 14% of the 1.1 million SMSF members are under 45, almost half (47%) of new SMSFs are set up by this age group. Moreover, over the last 10 years, the average age for starting an SMSF has decreased.
On-trend and here to stay
Choice and control have always been the key reasons for an SMSF. This hasn’t changed, but there is an increased appetite for SMSF services and investments that align with how we live and the world we want to see in the future.
SMSFs enables almost unlimited choice of investments. Historically SMSFs have invested conservatively across Aussie equities, term deposits, managed funds, and the occasional property investment.
This is changing as new SMSF trustees have a future-focused global view. As a result, direct investment into international markets is growing, as is an investment into emerging asset classes such as cryptocurrency and DeFi (decentralised finance).
Property investment is also attractive to a sub-segment of the SMSF market. Geared residential and commercial property investment in the form of limited-recourse borrowing arrangements (LRBAs) has continued to grow steadily. An LRBA enables an SMSF to pay a deposit for an investment property and obtain a loan for the balance.
Although SMSFs are taxed at the same rate as other superannuation funds, how tax is allocated and when the tax liability is taken out of the members account is very different in an SMSF compared to pooled accounts in industry retail super funds. This enables an SMSF to have larger sums invested for an extended period.
70% of SMSFs have two members, typically a couple. Pooling your super with your spouse enables fees to be shared. As the balance of the SMSF grows, the fees paid as a percentage decrease.
SMSFs also fulfill a strong emotive need by enabling hands-on control and ownership that cannot be obtained through any other type of superannuation product.
If superannuation’s disease is apathy, then SMSFs are the cure.
Why Self Manage?
An SMSF is a private super fund that allows you to control how your super money is invested. SMSFs can have up to 4 members, and a company is typically set up to act as the trustee.
An SMSF can invest in almost anything provided the investment isn’t in a related party or provide any present-day benefit to the members or their family. So, you couldn’t lend your sister money to help her start a business, for example.
The amount of control and transparency an SMSF provides is unmatched by any other type of super fund. You choose the investments your SMSF makes and when to buy and sell. You monitor your SMSF portfolio the same way as you do with your personal portfolio.
Often overlooked when comparing different types of super funds is that an SMSF enables you to combine your super with your spouse. Sharing the fixed costs of an SMSF can often save on superannuation account fees overall.
The DIY and administrative aspects of an SMSF are massively overblown. Well-funded industry super fund lobby groups have been pushing the narrative that SMSFs are complex, time-consuming, and expensive for more than a decade.
These assumptions, which are half-truths at best (and misleading at worst), have found their way into the vocabulary of many financial writers and advisers. Unfortunately, this makes it difficult for investors to sort fact from fiction when it comes to SMSFs.
SMSFs are best described as self-directed super funds. They are perfect for self-directed investors who want to take control of their superannuation.
Why Stake Super exists
Stake Super exists to break down the barriers between you and your super.
An SMSF is the ultimate vehicle for long-term savings for those who desire choice, control, and transparency.
SMSFs aren’t new, but unfortunately, they have an image problem. They’re seen as expensive and a paperwork burden for those who run them. Stake Super will be a completely new experience for those who want to self-manage their super.
How? We’re using technology to provide an entirely digital end-to-end experience. Set up and manage your SMSF electronically at the lowest cost in the market.
Rather than cutting service or pushing the admin work back to you, we take care of the tax and audit work for you. Let us do all the heavy lifting so you can focus on managing your SMSF portfolio.
As the Stake platform expands, so will the investment options under Stake Super.