SMSFs are growing in number and it’s why the Government wants to tax them more.
Anyone wondering why the Albanese Government is seeking to hit retirees with big super balances should only look at the spectacular growth of self-managed super funds.
This trend would be worrying the trade union buddies of the Labor Party, who’ve been the dominant founders of the industry super fund sector, which largely has been a good performer.
Two years ago, the super money in SMSFs was $890 billion and is now $1.05 trillion, with the average balance per member around $990,000.
And it’s not just retirees opting to invest their own money. The AFR’s Andrew Hobbs says younger super savers are also doing it for themselves.
All this partly explains why the Government wants to tax income made on super balances over $3 million at a rate of 30% and why they’re thinking about taxing unrealised gains. “The surge in balances also highlights how the sector is expected to bear the brunt of the government’s proposed new tax on higher super balances, “ Hobbs correctly explained. “Class estimates that the sector alone could provide about $3 billion in revenue if the tax goes through – $700 million more than the government’s estimate for the entire super sector in its first year of operation.” (Class is a software provider used by many advisers and clients with an SMSF to manage their investments.)
So, why are Australians starting to warm to the idea of managing their own super rather than relying on fund managers to invest on behalf of the successful funds such as Australian Super, Cbus, Host, Aware and others?
Let’s look at these reasons:
- The bigger the super balance, the cheaper it is to run an SMSF.
- While industry super funds are economical for members with low balances, in terms of dollar costs, as the balance grows, an SMSF looks relatively cheaper to run each year.
- A million dollars in super means you could manage an SMSF for around 0.4% or 0.5%, which would be cheaper than say Australian Super.
- Industry super funds are OK for general advice to their members, but those super members with bigger balances often want advice from a professional advisor. The combined dollar cost of an SMSF plus the advisor fees compares well to say an industry super fund.
- Increasingly, many super members realise that there are many super and tax rules that they don’t understand, so they turn to professionals whose job is to assess their client’s position and then see what super and tax rules will give them the best outcome for building their super and achieving their goals.
- The age of the exchange traded fund (ETF) has meant many SMSF people are investing for themselves. If managed well, these can produce results on par with or even better than the professional fund managers.
The growth of investing platforms such as Hub24 and Netwealth (and their linked big rises in the share prices) has come about partly because of this growth of SMSFs.
Hobbs reports that 42,000 new SMSFs started last year. And 49% of that growth was for 45 to 59 year olds. And 30 to 49 year olds saw 37% growth.
While the average balance per SMSF member was $990,000, as they often have two members, the average balance of the fund is $1.9 million.
Tim Steele, CEO of Class, roughly calculates that the Albanese Government super tax is set to drag about $3 billion out of the SMSF sector. And given its growth, this new tax play aimed at successful super-saving retirees will produce big paydays for federal governments going forward.
This a much bigger figure than the Government’s $2.3 billion number that it said they expect to get from the super tax. It’s why many of my financial planning clients are worried about the tax. And it’s why advisors like me are looking at alternative measures to reduce the hip pocket hit of this new slug from Canberra on those who followed the super and tax rules and did really well.
If you’re successful, you have to be careful in this country,
