Why SMSFs hold a lion's share of retiree market
It seems almost an understatement to say that the self-managed super sector holds a lion's share of superannuation's retiree market in dollar terms.
The recently-published Superannuation Market Projections report by consultants Rice Warner calculates that SMSFs hold more than half of the assets invested in superannuation retirement products. No other superannuation sector comes anywhere close.
This market share is explained in part by such factors as the higher average age of SMSF members and their much larger average balances. Another factor is that almost all SMSF members take their super as a pension upon retirement rather than a lump sum.
As a growing proportion of the population ages, builds-up their super wealth and enters retirement, industry super funds in particular are expected to increase their share of the retirement market.
Yet SMSFs are projected to keep holding by far the biggest share of the retirement market, again in dollar terms, for many years to come.
Rice Warner expects that the market share of retirement assets held by the various fund sectors to change over the next 15 years to: SMSFs, 44.2 per cent (52.5 per cent today); industry funds, 17.8 per cent (6.1 per cent today); commercial funds, 29.1 per cent (32.1 per cent today); public-sector funds, 8.9 per cent (8.4 per cent today); and corporate funds, nil per cent (0.9 per cent today).
Given that the SMSF sector has the largest share of retirement assets today, it will, of course, experience the biggest share of pension withdrawals.
Further, the new lower contribution caps from July 2017 will make it harder for members to establish very large SMSFs in the future, Rice Warner emphasises. In turn, this will have an impact on the SMSF share of assets in the pension phase.
Meanwhile, industry funds will take a markedly larger share of the retirement market – up from just 6 per cent today – as growing numbers of their members retire. Another factor at play is that industry funds keep improving the competitiveness of their pension products to retain members into retirement.
From an individual super member's perspective, these market share stats are yet another reminder of the need to save and plan for a retirement that could be fast approaching for many of us – if it isn't here already.
Perhaps you among those baby boomers who can clearly remember back to the days when their intended retirement date was sometime in the far, far distant future? Well, that future may be fast arriving.
Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment.