Industry super versus self-managed – what research says
Choosing between an industry super fund and a self-managed super fund? This information will help.
Key Points
- SMSF Association says research shows self-managed super fund (SMSF) performance matches industry super fund performance at $200k balance not $500k as advised by the super regulator.
- The research results suggest a more appropriate threshold is $200k.
- Research exposes different calculations in measuring super performance by regulators.
Historically, comparisons between self-managed super funds (SMSFs) and industry/retail super funds have been difficult to make, due to the different performance measures and methods used to calculate the data.
In their guidance to licensees and advisers, the Australian Securities and Investments Commission (ASIC) states that “on average, SMSFs with balances below $500,000 have lower returns after expenses and tax than funds regulated by APRA” (i.e. industry and retail funds).
However, new research commissioned by the SMSF Association casts doubt on that.
In a report from the University of Adelaide’s International Centre for Financial Services, Understanding self-managed super fund performance, data was provided by BGL Corporate Solutions and Class Limited from over 318,000 SMSFs between 1 July 2016 and 30 June 2019, to identify the minimum amount of capital required for an SMSF to achieve comparable investment returns with much larger funds.
When coupled with research by the actuarial firm Rice Warner in late 2020 – which found SMSFs with balances of $200,000 or more were cost effective compared with industry and retail superannuation funds – it suggests competitiveness of SMSFs with balances of $200,000 or more compared with larger funds.
Association CEO John Maroney says: “The research data revealed no material differences in performance patterns for SMSFs between $200,000 and $500,000, so the notion that smaller SMSFs in this range deliver materially lower investment returns, on average, than larger SMSFs in this range, is not supported by the research results.”
“The research results suggest a more appropriate threshold is $200,000”, Mr Maroney says, summarising the research finding that once this threshold is reached, the fund achieves comparable investment returns with APRA regulated funds.
The research also found that, when compared to the rate of return (ROR) performance measure used by APRA to calculate investment returns for APRA regulated superannuation funds, the ATO’s calculation of SMSF returns produces lower estimates of investment returns all else being equal.
“The research study overcomes this by using SMSF financial statement data to calculate an annual ROR for each fund in the data sample”, he says.
The Association says the research is a very significant development for the SMSF sector as it not only casts new light on the performance of SMSFs compared with APRA regulated funds, but it also illustrates why the ATO’s published SMSF investment returns should not be used to compare the performance of the SMSF sector with other sectors.
Commenting on the research, Professor Ralf Zurbruegg from the University of Adelaide says the way in which the ATO calculates SMSF performance is different to how APRA calculates performance of APRA regulated funds.
“When we account for the differences in how the performance of these funds is calculated, neither APRA regulated superannuation funds nor SMSFs with balances above $200,000 consistently under or out-perform each other”, Professor Zurbruegg says.
The study observed the financial performance of more than 318,000 SMSFs (representing over 50% of the entire SMSF population) and almost 500,000 unique performance observations.
You can learn more about the key findings from the study in this fact sheet on the SMSF Connect website.
