News

SMSF asset drop-off inevitable

ECPI choice making a difference

By Darin Tyson-Chan

A leading SMSF executive has acknowledged the growth in the sector is unlikely to continue and a fall in the number of funds and the proportion of superannuation holdings for which they account is to be expected.

“The SMSF sector sits at around 30 per cent of the total superannuation assets. Do we expect to see that increase? I suspect it probably will come down probably over the next decade,” SMSF Association deputy chief executive and director of policy and education Peter Burgess noted.

“The main reason for that I think is we will start to see some of these mega funds start to leave the industry. Some of these SMSFs that have $50 million and $100 million, that money will start to come out of the sector.

“With the introduction, of course, of the transfer balance cap, and the other caps, it’s inevitable that money will come out at some stage and it won’t be replenished or replaced with funds with balances of that size because of the contributions caps and things we have in place now.”

While Burgess predicted SMSFs are likely to contribute slightly less in terms of asset values to the industry, he is adamant the role they play and their importance will not be diminished.

“I think it’s fair to say [the sector] will still be strong with regard to [the number of] self-managed super funds as the [“Class Annual Benchmark Report”] has found [their popularity] among younger demographics,” he said.

“So we will see more funds, we will see more SMSF investors, but the proportion of those assets will be a little less than what we’ve got today.”

Heffron managing director Meg Heffron concurred with Burgess’s forecast and added another retirement savings factor will also contribute to this phenomenon.

“Legislatively, because we’re forced to take money out when everybody dies, we’ll see the whole quantum of super actually fall. It’s just we’ll only see that reflected in SMSFs probably because that’s where the big balances sit,” Heffron observed.

Peter Burgess

By Darin Tyson-Chan

A recent industry poll has shown the ability to choose the method by which exempt current pension income (ECPI) is calculated has already had a significant impact among SMSFs for the 2022 financial year.

The survey revealed 24 per cent of practitioners have SMSF clients who are exercising the choice made available to them and have selected the proportionate method to calculate the ECPI for their fund for the entire 2022 income year.

The exercise also indicated 38 per cent of advisers and accountants had SMSF clients who had chosen not to exercise their choice of ECPI calculation method, while another 38 per cent of participants said they did not have any clients who were eligible to choose how to derive the ECPI for the fund.

“[Seeing] 24 per cent [of trustees making Matthew Richardson

the choice to apply the proportionate method to determine their ECPI], that’s a pretty high number,” Accurium head of education Mark Ellem observed.

Accurium SMSF manager Matthew Richardson noted the survey result may not even be indicative of the actual effect the change in the ECPI rules has had.

“[The poll result] is reasonably close I would say [to the applications we’ve received for actuarial certificates]. I’m thinking we’re probably getting a few more [requests] for certificates where the trustee has made the choice so [the number from] this poll might be a little bit low [compared to the applications] we’ve received,” Richardson noted.

“But I’m surprised how high that ‘yes’ option is both in the certificate [requests] we’re receiving and in the poll at this point at least. I would have expected it to be a bit lower.”

Ellem pointed out the compliance season for SMSFs is still in its early stages, meaning the number of SMSF trustees exercising their right to choose the fund’s ECPI calculation method could still trend in a different direction.

Accurium anticipates the introduction of ECPI calculation method choice will affect around 3 per cent of SMSFs based upon statistics it has compiled.