Rice Warner said the high proportion of SMSF assets in retirement assets together with older membership demographics means the negative impact of the budget will be limited.
“Many of the funds in the retirement phase would have already reached their peak size and are drawing down to pay pensions to fully retired members,” said Rice Warner.
While the budget proposals will stop the creation of super-large SMSFs and inhibit the use of recontribution strategies, the research company said it will not immediately erode the size of established funds.
“Most SMSF members with pension-backing assets exceeding $1.6 million will choose to transfer the excess back to the accumulation phase to remain in the concessionally taxed super system. Few members are likely to withdraw the excess from super,” said Rice Warner.
“Significantly, almost all of the current retirement assets in excess of $1.6 million will remain in the SMSF sector until paid out in pensions and death benefits.”
Rice Warner also believes that non-concessional contributions in excess of the lifetime limit as at budget night will be kept in the super system for as long as possible.
The overall SMSF market share, Rice Warner said, will decline to 26.5 per cent over the 15 years, but mainly because more members will be retiring and withdrawing money from the super system as pensions.
“Before the budget, Rice Warner projected the sector’s market share of superannuation retirement assets would decrease from 53.8 per cent as at June 2015 to 49.3 per cent in five years’ time, and to 41.2 per cent within 15 years,” said the research company.
In dollar terms, however, Rice Warner predicts the SMSF sector will still grow strongly over the long term, reaching more than $1 trillion in retirement assets within 15 years.
“The SMSF sector’s overall market share and assets under management are likely to emerge relatively unscathed from the federal budget – at least over the medium term,” said Rice Warner.
“SMSFs will remain a powerful competitor for APRA-regulated funds, particularly for older members nearing retirement who generally have higher account balances.”
Read more:
ASIC drills in warning to accountants
Indeed, and who says one has to restrict one’s horizon to Australia?
Terry I don’t disagree regarding the risk. Another consideration is that even not allowing for SATO and other offsets a retiree can earn $45,000 before their AVERAGE tax rate exceeds 15%, the accumulation tax rate.
Of course high growth assets over the longer term can change the relative tax attractiveness so this is a consideration also.
On the income side $90k p.a. for a couple, at say 5% income (we wish at the moment), that’s $1.8M outside super and $3.2M inside before you would likely hold assets inside super now.
The additional benefit is the big drop in regulatory risk, not having to sell an asset on death, the ability to stream income and CGT if using a DFT and an ability to remove the asset from the estate (notional estate considerations aside).
These changes may mean that for your wealthy clients the focus shifts from SMSF’s to DFT’s. For clients further down the wealth spectrum, individual ownership I guess?
I do not agree. Why keep the excess in super where it is now open to unprincipled retrospective attack? There are other investment structures which may (not always) pay a little more tax but have no investment or payout restrictions and are not open to another retrospective attack eg a Budget restriction on lump sum withdrawals. The precedent has been set. Trust cannot be given that no further sudden changes will be made.