With change comes opportunity

December 11, 2023
Class Annual Benchmark Report Image

With change comes opportunity

We share some of the key insights shaping our industry from the Class Annual Benchmark Report 2023 and explore what this means for the future of SMSFs in Australia.

1.More than half of the new Class SMSFs established in FY23 were by Gen X

SMSFs have increased in visibility over the past few years, and we’re seeing that reflected in the growth of Gen X and Millennial members. One in two (52.7%) of the new Class SMSFs established in FY23 were by Gen X, with a nearly a quarter (23.7%) of funds established by Millennials. The younger generations are seeking more control over their super, and SMSFs are able to provide that benefit. Another contributing factor may be the changing narrative about how much it costs to run an SMSF and the minimum balance required.

Having younger members establish SMSFs presents a lot of great opportunities for the industry. Advisers and accountants can explore long-term wealth creation strategies with their younger clients that aren’t possible for older clients.

2.Average non-concessional contributions increased by 28.1% in FY22

In FY22, we saw a significant increase in the average concessional and non-concessional contributions for Class SMSF members. The average concessional contributions increased by 11.2% to $21,986 per member and non-concessional contributions increased by a huge 28.1% to $67,155 per member.

Given recent legislative changes around the work test and downsizer contributions, which have made it more appealing for older Australians to contribute to super, we expected to see an increase in this year’s figures. However, the magnitude of the increase for non-concessional contributions was more than we were expecting given our uncertain economic environment.

This is a very positive sign for the SMSF sector. It displays high confidence in the sector because members are prioritising super and willingly locking away money they could have used for other purposes. They’re engaged with their super and looking for opportunities to use their SMSF to increase their long-term wealth.

3.95% of Class SMSFs members are unlikely to be impacted by proposed $3 million super cap

While the proposed $3 million super cap will certainly make a splash if it’s introduced, but it will likely only impact a small number of members. The report reveals that 95.0% of Class SMSF members had balances under $3 million at 30 June 2023. Over three-quarters of the members (77.7%) that have more than $3 million in super are aged 65 or over.

What might be problematic for this small cohort of members is having cash tied up in illiquid assets. At 30 June 2023, 24.4% of Class SMSFs with member balances over $3 million have property ownership. This could make cashflow management difficult if they end up with a large tax liability.
However, despite the potential complications, the super cap is unlikely to deter people from establishing an SMSF. Given the right advice, SMSFs will still be an attractive prospect for people seeking to achieve more with their super. SMSFs are just one component of a comprehensive wealth strategy. Members, along with their accountants and advisers, need to have a whole of wealth view and consider what part of an SMSF may play in that strategy. We anticipate a rise in the popularity of trusts to give members the option to split their super and investments across various entities.

4.Super gender gap reduced by 4.4% points for Class SMSF members

Between FY17 and FY22, the super gender gap closed by 4.4% points to reach 15.9% for Class SMSF members. Over the same time period, the gap increased by 1.5% points to reach 20.6% for APRA super fund members.

This result demonstrates that SMSF members are likely to be more engaged with their super and are receiving active advice about strategies like rebalancing to even out super balances between couples. This is helping to provide better super outcomes for female SMSF members.

Analysing the super gender gap by age revealed that there is a negative super gender gap of -4.1% for Class SMSF members aged 25 or less in FY22. This presents a strong opportunity to give younger female SMSF members with a head start by putting strategies in place that will help them reduce or avoid a super gender gap in future, even if they take time out of the workforce. Focusing on proactive strategies to eliminate the gap for younger members, rather than trying reverse a wide gap for older members, may help close the super gender gap for good.

5.Almost one in two APRA fund members over 65 are still in accumulation phase

We saw evidence of the stark difference in financial literacy between SMSF members and APRA super fund members by examining what they do with their super after retirement. While one in two APRA super fund members over 65 (49.1%) were entirely in accumulation phase in FY22, this was true for only one in eight Class SMSF members (12.2%).

Being engaged with their super, and receiving active advice about retirement strategies, means fewer SMSF members are paying needless tax on their super earnings. However, it’s still concerning that some SMSF members have not taken the opportunity to move their balance into a retirement phase income stream to maximise their retirement benefits.

Advisers and accountants may need to make sure their older clients understand the importance of converting their accumulation balance into a pension by highlighting how every extra day in accumulation phase after 65 means more unnecessary tax.

6. SMSF auditing costs decreased by 4.8%

While SMSFs are unlikely to ever be considered a low-cost super option compared to APRA super funds, we’re seeing a change in perception about the cost of SMSFs compared to the value received by members in return. Between FY20 and FY22, average auditor fees decreased by 4.8% and the median fee decreased by 1.8%. This was largely due to improvements in integrated SMSF administration software.

Despite recent inflationary pressures, the cost of maintaining an SMSF has remained cost-effective at 0.66% of the average net fund assets. This figure is the sum of average audit fees, investment expenses and management and administration expense, divided by average fund assets at 30 June 2022.

For advice or accounting clients who may be on the fence about establishing an SMSF, this cost analysis may help convince them that the cost of running an SMSF is unlikely to be as prohibitive as they’re expecting – especially once they take into account the value and opportunities they will receive in return.

You can download the full Class Annual Benchmark Report 2023 here.


The information contained in this document is provided by HUB24 Management Services Pty Ltd ABN 59 135 332 320 and its subsidiaries (collectively, HUB24) and is current as at the date of publication. It is factual information only and is not intended to be financial product advice, legal advice or tax advice, and should not be relied upon as such. This information is general in nature and may omit detail that could be significant to your particular circumstances. Accordingly, before acting on any of this information, the viewer should consider the appropriateness of the information having regard to their or their clients’ objectives, financial situation and needs. This information is provided in good faith and derived from sources believed to be accurate and current at the date of publication. The information given in this document is in summary form and does not purport to be complete. While reasonable care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation and circumstances can change from time to time. Accordingly, neither HUB24 nor any of its related bodies corporate make any representations or warranties as to the completeness or accuracy of the information in this document and none of these entities is liable for any loss arising from reliance on this information, including reliance on information that is no longer current. We recommend that you seek appropriate professional advice before making any financial decisions.