Generation X and Millennials Propel Growth of Self-Managed Super Funds

According to the latest analysis by cloud-based wealth accounting and SMSF administration software provider technology company Class, Generation X and Millennials are at the forefront of establishing self-managed super funds (SMSFs). The 2023 Annual Benchmark Report reveals that Generation X (aged 42 to 56) and Millennials (aged 27 to 41) collectively accounted for 76.4% of new fund establishments in the 2023 financial year, while Baby Boomers (aged 57 to 71) made up 21.3% of the total.

Drawing from ATO data, the report highlights that the median age of SMSF members for newly established funds was 46 in FY21, down from 54.1 a decade ago.

Class CEO Tim Steele noted that younger generations are increasingly recognising the advantages of SMSFs, including flexibility, investment choice, control, and cost-effectiveness. These funds also provide an opportunity for greater engagement in retirement planning. Interestingly, the data also indicates that members aged 75 and over are opting to remain in SMSFs for more extended periods.

As of June, there were 610,287 SMSFs in Australia, reflecting a 4.2% increase year on year, as per APRA data. SMSFs now constitute $876.4 billion, equivalent to 25% of the total superannuation pool, which stands at $3.54 trillion.

Notably, Class fund members’ non-concessional FY22 contributions (made from after-tax pay or savings) surged by 28.1%. These were driven by factors like downsizing contributions, rebalancing strategies, changes to contribution caps, and the removal of the work test for individuals below the age of 67.

SMSF members seem to be benefiting from tax-free earnings in retirement, in contrast to APRA (Australian Prudential Regulation Authority) fund members, where nearly half of those over 65 still have their entire balance in the accumulation phase. For Class members in the same age group, only one in eight maintains an entirely accumulation-phase balance.

Steele observed that while this partly reflects the higher engagement levels in the SMSF sector and the value of financial advice, it also underscores the need for the superannuation industry as a whole, to enhance its identification and servicing of retirement income requirements.