Self-managed super fund assets worth $611 billion, but do you have enough to start one?

Australia’s self-managed super fund pool is now worth $611 billion, but small business owners looking to take control of their superannuation are warned to ensure they have a big enough balance to get returns from a SMSF.

The Australian Taxation Office released its quarterly statistical report into the state of Australia’s SMSF sector this week, and at the end of the September quarter, there were 1.1 million members with self-managed superannuation owning Australian and overseas assets with a net worth of $611.5 billion.

However, ATO data also highlights that over the past five years, the fight between SMSFs and other Australian Prudential Regulation Authority (APRA) regulated funds has been a tough one; from 2011 to 2015, SMSFs delivered a 6.2% return on assets, compared with 8.9% for other funds.

While the number of individuals interested in starting their own super fund has grown significantly over the past five years, the size of a fund does matter when it comes to returns, says MGI Adelaide director Des Caulfield.

“There’s a fixed cost regardless of the size, just on the regulatory side in terms of audit and tax returns,” Caulfield says.

“Our view would be that unless you’ve got at least $300,000, [people should wait until] they’ve got a large enough amount to justify the cost.”

In 2014-15, 19% of SMSFs had a balance of between $1 million and $2 million, while 24% had between $200,000 and $500,000, and another 24% had between $500,000 and $1 million.

Caulfield says that despite a year’s worth of discussions on the government’s new superannuation changes, including the $1.6 million cap on tax-free pension funds, the number of people with big super balances that will be affected by the changes will be quite small.

However, experts are calling on all investors to speak with financial advisors about the implications of the government’s changes, which also cover rollovers of concessional contribution caps and new annual limits for non-concessional super contributions.

“I would strongly advise SMSF trustees and members that their first point of call should be their financial adviser or accountant,” SMSF association chief executive Andrea Slattery said in a statement when the government passed the legislation in November.

For those considering jumping into the do-it-yourself pool now, Caulfield observes that despite competition, the costs for maintaining a self-managed fund remain high, even at the most basic level.

“The minimum cost would be just the regulatory advice of $2,000 to $2,500,” he says.

Interest in the SMSF space is still strong, but the number of new funds established in the September quarter was lower than it has been over the past four years; in 2012 there were 11,584 new SMSFs set up in this quarter, compared with 6,823 this year.

However, Caulfield believes that all things considered, over the past few years trends in the SMSF sector have remained stable.

“If you look through them year by year, they’re remarkably consistent,” he says.

In terms of preferred investments for SMSF holders, cash has dropped back as interest rates have seen returns dissolve, while the value of Australian shares held has increased. In September, Australians held $192 billion in listed shares, compared with $170 billion this time last year.

However, funds continue to have a decent chunk of borrowings on the table. At the end of the quarter there were close to $19 billion of borrowed money in the funds, compared with $17 billion last year.

There were $5.6 billion in “other liabilities”, compared with $5.2 billion in 2015, and $23.4 billion in limited recourse borrowing arrangements (LRBAs), which are used by super funds to borrow money for the purchase of property. This is also an increase on 12 months ago, when LBRAs made up $21.7 billion of the total asset pool.

Read the full list of SMSF statistics here.