A real-world benchmark for SMSF performance

While most SMSF trustees do not directly manage every administrative detail of their fund, by their very nature self-managed super funds are personalised, if not bespoke. So one of the underlying challenges of a self-managing super fund is knowing whether you are on track to be able to provide for a comfortable retirement.

Being able to benchmark your fund against a peer group is the disciplined way that most professional fund managers measure their success (or otherwise).

SMSFs can use publicly available data to benchmark their fund – picking a major industry fund's MySuper offer, or the diversified investment options that managers like Vanguard offer retail investors, provides a high-level comparison point.

But that may not be an apples to apples comparison as institutional managers have easier access courtesy of their size to certain types of asset classes or investments – infrastructure or commercial property for example.

Which is what makes research released this week by the SMSF Association and Accurium a valuable resources for SMSF trustees.

Accurium is an actuarial business specialising in the SMSF sector and as a result has more than 65,000 SMSFs on its database paying a pension and therefore requiring an actuarial certificate which gives Accurium a deep set of real-world data on SMSFs.

For the financial year ended June 30 2016, the median account balance for a two-person SMSF increased slightly to $1,137,000. The median imputed investment return was a modest 1 per cent compared to an average over the past seven years of 5.2 per cent.

The 2015-16 tax year was a challenging year for certain investment markets – particularly markets that SMSFs traditionally have had heavier exposures – like Australian shares and cash.

The good news for SMSF trustees is that despite the weaker investment returns the Accurium analysis shows that the median balance for a 65-year-old SMSF couple still have an 80 percent chance of sustaining $70,000 a year lifestyle in retirement.

When you compare SMSF balances to the broader super industry SMSFs clearly have significantly higher balances and general household wealth. Which is just as well because according to ASFA's definition of a "comfortable retirement" the amount needed for a 65-year-old has increased by 17 percent from $702,000 to $824,000.

As a result Accurium says that despite the higher balances in SMSFs, more than half of SMSF retirees cannot be "reasonably confident" of achieving their desired lifestyle in retirement.

One in four (25 per cent) according to Accurium are actually unlikely – less than 50 per cent chance – of achieving their retirement goals.

With the outlook for returns being lower for longer, the Accurium research provides a timely reality check for many SMSF trustees that while balances are healthy and rising slowly they may well need to contribute more into super in order to be confident of enjoying that retirement lifestyle they aspire to.

Written by Robin Bowerman
Head of Market Strategy and Communications at Vanguard.
19 September 2017
vanguardinvestments.com.au