SMSFs with less than $2 million in assets are “not viable retirement savings vehicles”, according to an analysis of ATO statistics by Industry Super Australia (ISA).
“Based on seven years of SMSF investment performance a typical SMSF needs more than $2 million in assets to generate returns above those of industry funds,” says the ATO SMSF Annual Briefing 2016 report recently released by ISA.
The research found that the average net return for SMSFs in 2015 was 6.2% – which ISA describes as “dismal” – compared to 8.8% for APRA-regulated funds..
“Even SMSFs with $2 million in assets were outperformed by the industry fund average (by 2 per cent) and the APRA-regulated funds average (by 1.1 per cent) in 2014-2015.”
SMSF performance “varied widely” depending on the size of the funds.
“Funds with fewer assets performed significantly worse than those with more assets. Returns ranged from minus 16.9 per cent for funds with less than $50,000 in assets to 7.7 per cent for funds with over $2 million.”
Other recent research found that SMSFs with over $550,000 in assets had investment performance and expense ratios comparable to the largest superannuation funds.
Industry Super chief economist Stephen Anthony said the findings were the “hidden story of self managed super funds”.
“The perception that there’s little difference in the performance outcomes of APRA-regulated and self managed super funds is false,” said Mr Anthony.
“A self-managed super fund with less than $2 million in assets is unviable as a retirement savings vehicle.”
“The best performing SMSFs will have a diverse portfolio of assets, and scale to drive costs down; for most people this is aspirational.”
The number of SMSF members grew by 5.5% in 2015, with a spike in members aged 35-44, which Mr Anthony ascribes to low financial literacy, high confidence and “strong links” to tax and financial professionals.
“We share the view that SMSF sector growth is being driven by sales efforts. It’s important that consumers look at the returns and fully understand what they’re signing up to,” he said.