SMSF trustees are achieving better returns than large super funds, according to recent research commissioned by Russell Investments and the Self-managed superfund Professionals Association of Australia (SPAA) and conducted by CoreData-brandmanagement.
The report confirms the sector is performing well with an average return over the last 12 months of 10.7% pa for those trustees who made a positive return, representing 98.6% of trustees. These self-reported figures suggest SMSFs have outperformed large super funds, which on average delivered 8.9% pa during the same period.
The reported returns are among the reasons why trustees are confident about their retirement outlook with four out of five saying they’re on track to achieve their target retirement income of around $1,500 per week. This mirrors their confidence in the super system with three in four SMSF trustees (74.0%) saying they’re confident in super as a vehicle for retirement savings – significantly higher than the proportion of non-trustees who share their level of confidence (53.6%).
Limited contributions
Despite high levels of trustee confidence, the retirement savings of around half of SMSF trustees have been limited by contribution caps. This group would have contributed on average $72,704 each to their SMSF if contribution cap limits were raised, equating to a collective contribution of some $15.1 billion. This lost opportunity comes as the research suggests trustees will have to access capital after 10 years in retirement to fund their future.
These findings highlight the lost potential of this regime with some trustees still likely to rely on government to support them in their later years of retirement because sufficient sums couldn’t be saved and invested.
Diversification of assets
While the quantitative research shows SMSF assets are highly concentrated, qualitative research suggests many trustees hold investments outside their SMSF, perceiving their fund as just one aspect of their investment mix. In fact over one in three trustees (37%) also have investments within a large super fund.
These findings are consistent with trustee appetite for borrowing within their fund with three in four trustees (75.6%) saying they have not used the new borrowing rules and do not intend to do so, suggesting borrowing to invest occurs outside their SMSF.
One particularly alarming statistic to come out of the research was that most trustees (67%) haven’t changed their allocation post retirement. There are often different investment criteria which should be considered in retirement and so trustees need to actively consider these in their asset allocation to ensure their fund meets their requirements both to and through retirement.
Trustees appear to be offsetting this risk with high allocations to fixed interest and cash (26.7%) with many waiting for a better investment option (51.9%) or using cash to reduce risk (46.4%).
A partnership approach
The findings highlight trustees are seeking a partnership approach with their financial advisers with around one third using their adviser for high level ideas before making their own decisions. Only one in four rely on them as the exclusive advice provider.
Reflecting the reduced reliance on advice, trustees say they rely primarily on mainstream media when making investment decisions with around half of trustees basing financial decisions on information sourced from financial and general newspapers, magazines and/or websites.
About the report
The report released in February surveyed SMSF trustees, non-trustees and professional SMSF advisers during November and December 2010. In total 1,331 Australian consumers were surveyed, of whom 431 were SMSF trustees and 258 high net worth individuals (HNWIs) without SMSFs. A total of 599 responses were recorded for the adviser research.
For more information, or for a copy of the research report, please visit www.russell.com.au
