A compulsory superannuation system was established in the early 1990s as a way of providing a comfortable retirement for all Australians.
Flash forward 25 years and there are now a number of different funds where you can invest your money, with SMSFs becoming an increasingly popular option.
Choosing a fund
Employers in Australia are typically required to make super contributions that are the equivalent to 9.5 per cent of an employee’s salary.
In most cases, employees should be able to choose the type of super fund their employer contributions are paid into.
The Australian Taxation Office (ATO) says that there are a number of different options that may offer investment strategies with higher returns, but which are higher risk, while others may garner lower returns, but provide greater security.
There are five main types of funds where you can invest your retirement savings:
Industry funds: They were once aligned with a particular industry and you could only join if you worked in that industry, but now they are open to anyone.
Industry funds are not profit-making and are often known for their low fee structures.
Retail funds: Also open to anyone and are run by financial institutions such as banks.
Public sector funds: Can offer what are known as a defined benefit and are generally open to Commonwealth, state and territory government employees.
Corporate funds: May also offer defined benefit funds and are typically available to employees working for a particular employer or business.
SMSFs: Work like any other super fund, but a trustee or trustees (which could be the fund investors) have the responsibility of managing it.
This includes taking control of investment decisions and a number of legal responsibilities.
The growth of SMSFs
The size of our superannuation sector continues to grow, boosted by the compulsory nature of the system.
According to the Australian Prudential Regulation Authority (APRA) the Australian superannuation system had $2 trillion worth of assets at 31 March 2015, which is an increase of 14.3 per cent from the March 2014 quarter.
Over the March 2015 quarter, total assets for entities with at least four members increased by 6.6 per cent (or $86 billion) to $1.39 trillion.
However, it is the growth in popularity of SMSFs that is most striking. Recent figures from the ATO reveal that in the five years to 30 June 2014, SMSF assets grew by 49 per cent to $183.2 billion.
Between 30 June 2010 and 30 June 2014, the number of SMSFs grew from 414,000 to over 534,000, with over 1 million SMSF members.
This represents 9 per cent of the 11.6 million members in Australian super funds.
Traditionally SMSF members tend to be older than members of other types of superannuation funds. They also have a higher average balance and taxable incomes.
ATO statistics show that in 2013 average taxable income of SMSF members reached over $100,000 and the average SMSF member account balance hit $524,000.
Despite this, latest statistics reveal that members who are establishing new SMSFs are getting younger.
For the first time, the median age of SMSF members of newly established funds in 2013 decreased to less than 50 years.
Currently 82 per cent of members are aged over 45 years, and the sector has seen seeing significant growth in the 35–44 age bracket.
It is also interesting to note that women now account for 47 per cent of all members. In the 35–64 age group there is a higher proportion of female members than males.
However, this changes in older age groups, with those over 65 years old more likely to be male.
Why are people turning to SMSFs?
According to APRA, at the end of the March 2015 quarter 52 per cent of the $1.35 trillion investments for entities with at least four members were invested in equities, with 24 per cent in Australian listed equities.
An attraction of running an SMSF is the ability to take control of investments and concentrate or diversifying asset portfolios.
Recent figures show that SMSFs directly invested 78 per cent of their assets in cash, term deposits and Australian-listed shares (a total of 61 per cent).
The Australian superannuation system continues to grow, meaning there are now more options than ever to help you choose how you invest your retirement nest egg.
While there are five main options, statistics show that Australians are increasingly considering running their own SMSFs, and are doing this sooner rather than later in life.
If you want to learn more about SMSFs, download an today.