A compulsory superannuation system was established in the early 1990s as a way of providing a comfortable retirement for all Australians.
Flash forward 27 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 the Australian Prudential Regulation Authority (APRA), the Australian superannuation system had $2.3 trillion worth of assets at 31 March 2017, which is an increase of 11.2 per cent from the March 2016 quarter. Over the March 2017 quarter, total assets for entities with at least four members increased by 2.4 per cent (or $36.5 billion) to $1.5 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 2016, SMSF assets grew by 55 per cent or $219.7 billion.
Between 30 June 2012 and 30 June 2016, the number of SMSFs grew from 440,000 to over 577,000, with almost 1.1 million SMSF members. This represents 9 per cent of all 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 2015 average taxable income of SMSF members reached $108,000 and the average SMSF member account balance hit $590,000.
Despite this, latest statistics reveal that members who are establishing new SMSFs are getting younger. Currently, 83 per cent of members are aged over 45 years, and the sector has seen 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 2017 quarter 50.2 per cent of the $1.5 trillion investments for the entities with at least four members were invested in equities, with 23.6 per cent in Australian listed equities.
An attraction of running an SMSF is the ability to take control of investments and concentrate on diversifying asset portfolios.
Recent figures shows that SMSFs directly invested 54 per cent of their assets in cash, term deposits and Australian-listed shares (a total of 31 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.
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