SMSFs show resilience and sustained growth during COVID-19

The Class Annual Benchmark Report: SMSF Resilience in a time of constant change examines how the SMSF sector responded to the unique challenges presented because of COVID-19, and how trustees changed contributions and asset allocations, and what that means for the gender gap.

Despite the world facing economic uncertainty as the result of the COVID-19 pandemic, border closures, and government lockdowns, the report revealed that the SMSF sector showed resilience and stayed its course in terms of performance which is aligned to their long-term strategy.

“As we worked through the impacts of COVID-19 on our industry, we knew that this was the time to examine deep inside the SMSF sector to look for the emergence of trends,” Class CEO Andrew Russell said. 

“It has been interesting to see how resilient the sector has been, from avoiding early release mechanisms to making more contributions to SMSFs across the year as we believe investors looked to capture the significant upside following market falls.”

The report noted that while the government's early access to super scheme had depleted the balance of many APRA funds superannuation members, SMSFs with almost one-third of total super assets recorded minimal withdrawals and accounted for just 1 per cent of COVID payments.

“This resilience and adherence to long-term strategy enabled SMSFs to rebound from an average net assets per SMSF of $1.36 million in March 2020 to $1.55 million by December 2020 and sees continued recovery into 2021, capturing the upside following the market downturn in March 2020,” Class said.

“This is further reflected in the 50 per cent pension minimum reductions, another concession in which SMSF members adhere, to further protect capital value of SMSFs."

The report also highlighted that despite the “doom and gloom” prediction of a massive exodus of SMSFs and members due to the 2017 Super Reform, where the government introduced a maximum of $1.6 million transfer balance account for retirement phase, the sector continues to expand, albeit subdued growth. 

“We can also see that the average age of an SMSF member is falling, indicating that SMSFs are being established by younger people using them in tandem with an APRA fund, to give them control over their investments,” the report noted.

“The complexity around SMSF administration and its over-regulation predicted the cost of running an SMSF to be prohibitive, but it never actually slowed down the steady growth of the sector. Thanks to the increased adoption of technology and cloud solutions such as Class, Class clients continue to enjoy increased automation, data feeds, and purpose-built solutions to achieve better efficiency, lower the cost, and stay compliant.”

The gender gap also continues to close, albeit at a slow rate. While there is still a distinct gap between female and male SMSF balances, Class noted female balances have grown from 79 per cent to 84 per cent of male balances, further validating the trend towards an equal balance between the two genders. 

"There is a continued trend of higher participation by women in younger demographics compared to older demographics (50 per cent for under 45s; 40 per cent for over 85s)," the report noted.

"With the changes to super reform and contribution caps, we expect to see this gap continue to change, as members use contribution splitting, recontribution strategies to rebalance their funds to remain within the $1.6 million transfer balance cap, which has been indexed at $1.7 million from 1 July 2021.

"Overall, the Class findings highlight the need for financial advisers, accountants, and SMSF members to consider the often significant differences that exist between trustees of different ages and genders when building their SMSF portfolio."

With the last financial year seeing many uncertainties in the market, both in terms of public health, and financial performance, this has led to the greatest contributions change on record, according to Class.

“Traditionally, most contributions take place at the end of the financial year as SMSF members make use of contribution caps. However, last financial year we can see that contributions were far more dispersed across the year. A reverse radical recovery in super contributions has been observed in the 2020-21 data,” the report found.

“This may reflect individuals working to get available capital into their SMSFs to capture the upside following market downturns in March 2020, or to allow them to get their capital into a secure vehicle to avoid market volatility from other potential investments.

"Given the size of an average SMSF fund and the ongoing changes around contributions, this presents a prime opportunity for accountants to leverage in streamlining their processes. As well as the opportunity cost of time spent on back-office tasks instead of client relationships, the potential return on investment in technology solutions is substantial."