Self-managed superannuation funds (SMSF) are the biggest losers from the May Budget proposals, according to DEXX&R.
Annual growth in funds under management/assets (FUM/A) held in SMSFs is expected to fall from 4.1 per cent per annum to three per cent per annum as a result of the Budget changes, the research house found.
Contribution inflows into SMSFs are expected to fall by $4 billion in the 12 months from 1 July 2017, slowing the growth rate in FUM/A held in the accumulation phase, DEXX&R’s market projections report said.
DEXX&R said the lower cap on concessional contributions and the lifetime cap on non-concessional contributions will slow down the growth rate in assets held in SMSFs and new funds transferred into SMSFs.
“FOFA [Future of Financial Advice] resulted in the removal of built-in cost of advice in retail administration and investment management charges reducing the administration and investment management cost advantage available to members of SMSFs where they were able to access ‘wholesale’ managed funds with charges that did not include a built-in advice fee,” the report said.
“With future contributions capped there is little scope for SMSFs to obtain lower charges than those imposed by retail or industry funds.”
SMSF accumulation accounts were projected to hold $226 billion in FUM, and account for nine per cent of total assets in 2025, down from 13 per cent in 2015.
The report also said SMSFs were expected to feel the greatest impact of the $1.6 million maximum account balance.
It said the cap would result in:
- Increased flows from SMSFs back into retail and industry fund allocated pensions as the fixed ongoing cost of compliance for an SMSF income stream account would erode any cost advantage on an account with a declining balance; and
- Outflow of funds from SMSFs in the retirement phase as members with an account balance in excess of the cap switched the excess into lower tax alternatives.
SMSF pension accounts were also projected to hold $574 billion in FUM, 44 per cent of total assets in 2025, down 60 per cent in 2015.
