The interest of younger generations in self-managed superannuation funds is growing, as more young professionals start making long-term decisions about their futures.
Those aged over 50 still account for the greatest number of SMSFs, but there are increasingly more 31 to 40-year-olds expressing interest in managing their own super.
The demand from this age group has grown strongly over the past three years, according to an annual survey from the SMSF Professionals Association of Australia and Russell Investments.
“They are interested in the longer term and have a good understanding of the short-term issues versus the longer term opportunity,” the report says.
SPAA chief executive Andrea Slattery says the 31 to 40-year-old age group has witnessed “year-on-year growth”.
“The main reason for the growth is that people are becoming more educated, more aware and more interested in making their own decision knowing it’s for the long term,” she says.
“It’s not just for the immediate six to 12 months, it about saving for when they retire and then onwards. Many professionals and small business owners are at the age where they’re starting to seek professional advice for the long term.”
But despite the growth in younger generations, the overall number of people looking to establish an SMSF in the next five years has dropped from 17.3% to 12.3%, although over the longer term the figure is 14.2%.
Slattery says this is reflective of people becoming more educated about SMSFs.
“There is a real movement toward people who are genuinely interested and those who understand their needs and are making a conscious decision,” she says.
“There have still been a number of SMSFs established in the past 12 months in line with long-term trends set over the past 12 years, so this is reflecting people’s genuine intentions.”
For the fourth successive year constant legislative changes and contribution caps also took a toll on SMSFs and SMSF trustees reported under-investing in their retirement by $16 billion a year because of the uncertain environment.
Despite this, it was a strong year for super, with most funds recovering their GFC losses.
In terms of investments, Slattery says people still held onto some cash, but this was because they were wary about possible legislative changes and the contributions cap.
“They are also becoming interested in new opportunities to invest in, so they’re maintaining some flexibility as new markets emerge.”
Slattery says there was a small decrease in equity holdings which have been considered high for the past few years and a small increase in property, which has been considered low compared to long-term trends.
“There’s nothing sinister here, it’s just business as usual.”
Russell Investment director of client investment strategies Scott Fletcher said in a statement investment advice is valued by most SMSF trustees.
“It’s not all about picking stocks and sectors; SMSFs need to tap into strategic investment advice to help them achieve their desired goals and deal with complex issues such as sequencing risk, and the impact of this on retirement outcomes. There is a real opportunity for advisers to step up into this role,” he says.
“Like all investors, the preferences and biases of SMSF investors have a significant impact on their strategic asset allocation and their ability to link goals to outcomes. This is an underappreciated aspect of portfolio design that advisers can shed light on. Often, SMSF investors will jump straight to the vehicles they prefer to invest in, bypassing the all-important goal-setting and asset allocation steps in the process.”