How young Aussies are changing the face of SMSFs

31 January 2023
| By Jasmine Siljic |
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Older Australians are no longer the only ones gaining greater control over their superannuation. 

While there is an assumption that millennials and Gen-Z are apathetic towards their retirement savings, a percentage of young Australians are changing the status quo. 

Self-managed super funds (SMSFs) are becoming increasingly popular amongst young people, which places the power in the hands of the trustee to manage their own fund’s investment strategy.

Recent data from the Australian Taxation Office (ATO) during the last quarter stated that of the 1.1 million SMSF members, 13.5% were aged 44 or younger. 

This statistic continues to climb higher in comparison to previous years, with the number of millennial-advised SMSF clients quadrupling over the past decade, according to AUSIEX.

Peter Burgess, deputy CEO of the SMSF Association, told Super Review that almost half the SMSFs being set-up each year are by individuals who are under the age of 45.

“It’s a healthy sign for the SMSF sector and the broader community because it means the narrative around the benefits of investment flexibility, control and higher levels of engagement with your superannuation savings is reaching people at a younger age and well before their retirement age,” Burgess explained. 

An industry in evolution

A plethora of super-focused apps and companies are available online, just a quick download away. Trading platforms such as Spaceship Super, Stake Super and Raiz Super all have a distinct audience in mind: young Australians. 

The technological convergence of one’s super and investment portfolio into a single stylish interface enables millennials and Gen-Z’s to manage their funds all in one app.

These sites enjoyed the unintended help of COVID-19 lockdowns, with more time at home prompting young investors to further prioritise their super-related goals. Research commissioned by Equip Super found that nearly one-third of under-35s invested in super or other investment products for the first time during the pandemic

Moreover, 47% of Australians aged 18–24 years old regarded super as more important now when compared to the beginning of COVID-19.

“Many young people used their extra time during the pandemic to learn about finance, accelerating the growth in knowledge among retail investors,” commented Ciara Conway, SMSF product lead at Stake Super.

Also speaking to Super Review, Equip CEO Scott Cameron acknowledged the impacts of the pandemic on young Australians’ financial literacy. 

“The past two years have been immensely difficult for young Australians, so it’s not surprising there is a trend toward finding measures that can reduce ongoing financial stress in later life,” he said. 

Understanding the shift

Stake Super is an SMSF platform directly catering to its younger target demographic, and enables Australians to access ASX and Wall Street-listed securities.

Compared to the industry average of 61-years-old, Stake’s average customer sits at 39-years-old, reflecting the deeper shift in SMSFs altogether.

“There’s often a stigma attached to the idea of the ‘young investor’, but our data shows SMSFs overwhelmingly attract those with strong market experience who are focused on long-term returns,” Conway said.

“We expect this [trend] to continue as SMSFs become more streamlined and accessible.”

The product specialist recognised control and transparency as two factors driving Australians towards setting up an SMSF. 

She added: “Professional financial advice remains expensive, and with so many financial education resources available, many young investors prefer managing their own finances. 

“The generational wealth gap continues to grow, so young people are taking a proactive approach to securing their financial future by turning to equities. Some have grown their knowledge through investing for several years, and now feel equipped to manage their superannuation too.”

When asked about how app-based platforms are changing the super landscape, Conway explained: “Until recently, SMSFs were incredibly complex to set up and expensive to manage, so younger people often didn’t have the time and felt it didn’t make financial sense.

“Products like Stake Super offer a fully-digital experience for trustees, while leveraging developments in SMSF accounting software to make compliance and admin efficient and economical.”

SMSF users can additionally access their finances “under one roof”, Conway noted, “providing a fully-integrated experience spanning SMSF administration, cash management and investing”.

These emerging platforms and technologies are welcomed by the SMSF Association, as the deputy CEO described them as “making it easier for people to access information and for service providers in the SMSF sector to provide the services and tools SMSF trustees need to manage their fund efficiently and effectively”.

The role of traditional super funds

Alongside the flurry of M&A activity in the super landscape during 2022, industry and retail super funds still remain the key players in the realm of retirement savings.

Equip Super is a profit-to-member industry fund, founded in 1931. With over 150,000 members, the fund manages $30 billion in assets under management across both Equip and Catholic Super since its completed merger in 2021. 

“Prioritising voluntary contributions from a young age is one way people can set themselves up for a more comfortable future,” the fund’s CEO encouraged. 

His advice was reflected in Equip’s data, which found that 39% of survey respondents had made voluntary super contributions before entering their 30s. 

“If you have disposable income, taking small steps now, such as making voluntary contributions into your super, may have a considerable positive impact on your super later in life.”

From the freedom of SMSFs to the security of more traditional avenues, young Australians are now faced with an abundance of choice when it comes to managing their super.

Cameron said one of the fund’s key initiatives for the coming financial year is improving its digital capabilities, led by the demand among young people to easily manage their super.  

The future of SMSFs and young Aussies

“SMSF awareness and in-depth knowledge is still low among younger Australians but this is growing rapidly,” Conway acknowledged. 

As self-managed funds become more commonplace, she expects couples and young families to increase their SMSF uptake.

Despite this growth, Conway warned “a self-managed approach is not appropriate for everyone, as it requires a full understanding of the risks, a deep knowledge of the markets, and the dedication to regularly recalibrate a portfolio”.

Conway, Cameron and Burgess all recommended that those who felt unsure should seek the support of a licensed adviser to decide whether an SMSF is right for them. 

In addition, research commissioned by the SMSF Association highlighted that SMSFs need a balance of at least $200,000 to be competitive with larger retail super funds. 

“Younger Australians today have grown up with compulsory super and having larger super balances compared to older generations at the same age,” said Burgess. 

He observed that millennials and Gen-Z are feeling greater empowerment to exercise more control over their financial decision-making, when compared to previous generations.

“They are wanting a deeper engagement with their retirement savings and many will naturally gravitate to SMSFs.”

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