SMSF market shifts

While the amount of money contributed into self-managed superannuation funds (SMSFs) has increased year-on-year for the past five years straight, it’s still down two-thirds from what it was before the introduction the Transfer Balance Cap (TBC) in 2017.

According to figures published by the superannuation regulator, APRA, in 2021-22 SMSF members contributed $15 billion into their SMSF member accounts. But in 2016-17, before introduction of the TBC, they contributed $38 billion, which was two-and-a-half-times more.

The TBC limited the amount of retirement savings that would be tax-free to $1.6 million. Amounts above this threshold are now taxed at a nominal 15%.

Research by Rainmaker Information shows that while employer contributions into SMSFs have remained stable through the period, voluntary top-up member contributions have plummeted.

“The TBC profoundly changed the nature of the SMSF superannuation segment. It took the segment two years to regain composure after the 2017 tax shock and start growing again,” said Alex Dunnin, executive director of research and compliance at Rainmaker Information.

The introduction of the TBC saw contributions into SMSFs plummet 60%.

At the same time the number of SMSFs established each year fell one-third in 2018 and 2019, from about 30,000 per year to about 20,000 per year.

“There was a recovery in SMSFs being established in 2020-21 although in2021-22 SMSF establishments fell away again,” said Dunnin.

“The net effect is that the total number of SMSFs is still increasing, but the rate is slowing.”

Dunnin said that what is more intriguing about the SMSF sector is that since 2017, transfers out of SMSFs have almost doubled from$5 billion to $10 billion per annum.

There is still a net inflow of money into SMSFs, however this has nearly halved from almost $10 billion in 2017, to $5 billion in 2022.

Reflecting this, over the past five years, SMSF funds under management have grown by 5.8% pa, which is significantly slower than the rest of the superannuation market that grew 6.6% pa.

“Another major change within the SMSF sector was that even though the amount of retirement benefits paid out of them has been remarkably stable at about $31 billion per annum, the way this money is paid has changed significantly as SMSF members switch from pension payments to lumpsums,” said Dunnin.

“In 2017 just 14% were paid as lump sums, but this ratio has tripled to 42% by 2022.”

“SMSF members no longer seem to see their funds as the place to put their member contributions, but they clearly still see them as a very good place to store vast amounts of family-owned superannuation wealth.”