2012 was the year of the dragon, it’s also been the year of the self-managed super funds. SMSF’s now manage nearly a billion dollars in funds, this is a fantastic result and indicates more and more Aussies are taking control of their financial destiny plus investing the time to learn what are the best options for their needs. But with the growth there has also been a lot of regulatory changes that SMSF members need to be across to avoid penalties.
We asked guest writer Anthony Fensom to summarise 2012’s SMSF changes and trends to make sure you stay in the know.
“More and more Australians are looking to take greater control and be involved in their superannuation,” says SMSF specialist adviser Liam Shorte of Nextgen Wealth Solutions. “With over a third of the total superannuation pool of funds in this sector, the SMSF appears to be becoming the retirement vehicle of choice for many Australians.”
Some of the biggest events of 2012 surrounding SMSF facts, where, unlike the dragon, the gains have been far from mythical:
1. SMSFs approach 1 million members
“On current trends, the one millionth SMSF member should register in mid-to-late 2013,” Shorte says.
According to Australian Taxation Office (ATO) data, more than 36,000 SMSFs were established in fiscal 2012, increasing the total number as of June 30th to 478,263 and with 913,550 members.
Assuming the same growth rate, there would be around 986,000 fund members by the end of June 2013. The number equates to nearly one in 20 Australians, around the same proportion estimated to play the pokies weekly, but far more likely to earn a return on their funds.
2. SMSF hold $439 billion assets
SMSFs grew faster than any other sector in fiscal 2012, with total funds under management increasing to nearly $439 billion of Australian and overseas assets.
Funds increased their cash holdings by $4 billion to $134 billion, but reduced listed shareholdings by around the same amount, falling to $131 billion. However, this trend may reverse due to falling cash rates, with trustees instead acquiring high dividend, ‘blue chip’ shares.
Despite all the talk about SMSF property investments, both non-residential and residential property categories grew only marginally, to $50 billion and $15 billion, respectively.
3. Younger generations get involved
Traditionally the preserve of the baby boomers, signs are emerging of increased activity in SMSFs by younger people including Generation X.
At the end of June 2012, those aged 55 years and older accounted for 61 per cent of members, with those between 35 and 54 making up around a third. However, in the June quarter 2012, the most active group was those aged between 45 and 54, accounting for 31 per cent of new members, with those aged between 35 and 44 making up 25 per cent.
4. You don’t have to earn a fortune
Most advisers suggest around $200,000 in assets as the minimum amount required to make starting an SMSF worthwhile. However, the ATO’s data suggests that at least in terms of taxable income, it is not necessary to be rich to get involved.
As of June 2012, members with taxable incomes exceeding $100,000 a year accounted for 22 per cent of the total, including 2 per cent with incomes of half a million dollars.
Yet the data also showed that 55 per cent of members had annual taxable incomes below $60,000, perhaps reflecting the number of retirees with SMSFs.
5. Regulatory changes (again)
More certain than death and taxes is change to SMSF regulations. In the past year, some of the major changes have included:
- Increased tax rate on contributions from members with annual income over $300,000, rising from 15 to 30 per cent.
- Cap on concessional contributions remaining at $25,000 a year until July 2014.
- Trustees required to consider if insurance cover should be held on lives of members.
- New valuation guidelines requiring assets to be valued at ‘market value’ each year, with related party acquisitions also at market value.
- ASIC takes responsibility for SMSF auditors from ATO, with all auditors required to register before July 1st, 2013 and at least 20 audit reports a year required to satisfy experience criteria.
“Major current issues for SMSFs include death benefit planning, which can open up a minefield of issues including tax, along with making sure borrowing arrangements are properly implemented,” says SMSF specialist adviser Scott Hay-Bartlem, partner at Cooper Grace Ward.
While 2012 has been an active year for SMSFs, next year is sure to bring another host of changes along with increasing membership and asset growth. By seeking the right advice and knowing your SMSF facts, it is possible to take advantage of the benefits instead of being bitten in 2013, the Year of the Water Snake.