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Updated: DIY super falls seriously short for balances under $2 million, new analysis reveals

  Published: 26 Feb 2018

UPDATED 16/03/18 – 26 February 2018

Unless it contains multi-million dollar assets, a self-managed super fund (SMSF) may prove a mistake for the average consumer, reveals an analysis of new tax office data.

The Industry Super Australia paper, ATO self-managed super funds: a statistical overview 2015-2016, has found that for that financial year while do-it-yourself funds with assets over $2 million earned, on average, a healthy 4.3%, those under $500,000 earned shocking average returns. These ranged from zero for funds with assets of $200,00-$500,000 to negative 16.7% for funds with assets of less than $50,000.

As the data shows, even with assets of $1 to $2 million (avg 2.2%), or $500,000 to $1 million (avg 1.4%), returns were below the 2016 APRA-regulated fund average (2.9%) and industry super fund average (4.1%).

Over the five years to 2016 the pattern held true. APRA-regulated funds earned an average return of 7.4% and, within that category, industry funds earned an average 8.2%. Conversely, SMSFs with assets over $2 million earned on average 5.6%; $1-2 million earned on average 4.5%; $500,000 to $1 million on average 3.7%; and, for balances below $200,000, average returns dropped into the negatives.  

Industry Super chief economist, Dr Stephen Anthony, said the data suggested SMSFs work for sophisticated, high wealth individuals but cast doubts over their suitability for ordinary Australians.

“SMSFs with assets over $2 million on average generally performed on par with APRA regulated funds and underperformed industry funds, but medium to smaller ones showed appalling returns,” he said.

“The pattern is clear: the less you have, the worse you perform”.

Small to medium SMSFs also compared badly on outlays, incurring a disproportionally high expense ratio of above 6 per cent.

“The administration costs of running an SMSF with a small balance are often too high,” said Anthony.

“It’s important to know how your super fund stacks up on fees and net returns – otherwise you could be in for an unpleasant surprise,” he said.

Despite generally poorer returns and higher costs, total SMSF membership grew 3.7 % in 2016 to approximately 1.07 million members in over 568,000 SMSFs.

In the 2015/2016 financial year:

  • The SMSF sector’s average return on assets (2.9%) was on par with the APRA-regulated sector. But the disparity between high wealth fund performance ($2 million – 4.3%) and low wealth fund performance (under $500k – 0% to negative 16.7%) was great.
  • Asset allocations of smaller SMSFs lacked diversification, exposing them to greater risk. For example, 60% of SMSFs with balances under $100k had 80 per cent or more invested in a single asset class.
  • SMSF limited recourse borrowing arrangements (LRBAs) grew. Total assets under LRBAs rose 17.8% to $25.4 billion – an 18-fold increase since June 2011. LRBAs, promoted as a way of minimising tax, may be driving up property prices.

The analysis conducted by Stephen Anthony and Gary Lu is available here. See over for key tables.

Stephen Anthony is available for interview. Media contact Phil Davey 0414 867 188 

Past performance is not a reliable indicator of future performance. Industry Super Australia Pty Ltd ABN 72 158 563 270, Corporate Authorised Representative No. 426006 of Industry Fund Services Ltd ABN 54 007 016 195 AFSL 232514

Figure 1 – Return on asset by SMSF size (2016)

Figure 1 Return on asset size by SMSF size 2016

Source: ATO SMSFs: A statistical overview 2015-2016.

Note: SMSF members in funds with balance lower than $2 million on average, receive returns below 2.9 per cent. Approximately 40 per cent of SMSFs received zero or negative return in 2016. During the same period, the industry fund sector average return was 4.1 per cent. 

Table 1 - APRA-regulated funds & SMSFs annualised return by asset range (2016)

    3-years 5-years 8-years % of entities by fund size % of assets by fund size
APRA-regulated funds All 7.7% 7.4% 5.1%    
Corporate 7.6% 7.4% 5.4%    
Industry 8.8% 8.2% 5.7%    
Public Sector 8.5% 8.2% 5.7%    
Retail 6.6% 6.4% 4.3%    
SMSFs $1-$50k -15.1% -16.3% -15.0% 5.6% 0.1%
>$50k-$100k -5.4% -6.2% -6.2% 3.7% 0.3%
>$100k-$200k -0.7% -1.4% -1.9% 8.6% 1.1%
>$200k-$500k 2.9% 2.5% 1.5% 24.0% 7.4%
>$500k-$1m 4.8% 4.6% 3.5% 24.8% 15.8%
>$1m-$2m 5.8% 5.7% 4.6% 19.0% 23.6%
> 2m 7.7% 7.2% 6.0% 14.3% 51.7%
Average 6.3% 5.8% 4.6%    

Source: ATO SMSF Statistics 2015-16. APRA Statistics - Quarterly Superannuation Performance September 2017 (historical)

*The above material, whilst correct at the time of publication may include references or statements which are no longer current.

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