The average balance of newly established one and two-member self-managed super funds is well below the minimum balance recommended by the Productivity Commission in its recent super industry review.
According to the latest Class SMSF Benchmark Report, the average individual member balance of a newly established fund is around $225,000.
The average balance of a newly established single member fund is $355,000 and the average balance of a newly established two-member fund is $406,000.
Three and four-member funds include members with relatively low balances but in both cases the average fund balance is up around $500,000.
Class, an SMSF administration software company, reviewed more than 26,000 funds set up between 2014 and 2018 to get an insight into newly established SMSFs.
It found that 72.2 per cent of SMSFs are set up with two members, 24.8 per cent with one member, 1.4 per cent with three and 1.6 per cent with four.
Average balances are below the minimum balance of $500,000 recommended by the Productivity Commission in its report on superannuation earlier this year.
The Productivity Commission says large SMSFs earn broadly similar net returns to APRA-regulated funds but smaller ones, with less than $500,000 in assets, perform significantly worse on average.
It says advisers should be prepared to justify to ASIC why they are recommending an SMSF be established with a balance under $500,000.
The Productivity Commission report says: “While some SMSFs expand quickly and perform better, others appear to start small and stay small – and an estimated 380,000 members are in smaller SMSFs that have been established for more than two years.”
Class says: “There has been considerable debate and analysis around how much money is needed to make establishing an SMSF a viable proposition, taking into account set-up and ongoing costs against likely investment returns.
“While many agree there’s no clear-cut answer, and applying a hard minimum balance isn’t necessarily helpful or appropriate, one clear advantage of an SMSF is the ability for individuals in a multi-member fund to pool their investment dollars and giver fund members more investment clout.”
The average age of members of newly established funds is 48.9. In 2012. The ATO reported that the average age of members at fund establishment was 50, so there has been a gradual trend for members to set up their SMSFs at a younger age.
Looking at its broader data set, Class says the average SMSF balance is $1.4 million, with average assets per member of $738,000.
Fifty-two per cent of members are in accumulation, 17 per cent are in pension and 31 per cent are a mix.
Current asset allocation
includes 26.9 per cent in listed shares, 20 per cent in cash and term deposits,
19.1 per cent in unlisted trusts, 10 per cent in non-residential property, 5.9
per cent in residential property and 5.4 per cent in listed trusts (including
ETFs and REITs)