As with estimated SMSF investment performance data, care must be taken when using the operating expense (OE) ratio figures because comparisons may not be meaningful. While the methodology used to estimate the OE ratio is as close as possible to APRA’s method, the data collected is not the same (see appendix 2).
From 2013 onwards, new labels were added to the SMSF annual return to collect information on non-deductible expenses incurred by SMSFs, particularly for those in pension phase. These labels have been incorporated in our calculation of OE ratio figures for 2013 and later years.
The estimated average OE ratio of SMSFs in the year ended 30 June 2014 increased to 1.06%, largely due to new data collection on non-deductible expenses items. By comparison, the average OE ratio over the three years to 2012 was 0.65%.
Similarly, the average SMSF operating expenses value grew by 81% from $5,900 in 2010 to 2012, to $10,700 in 2013 and 2014. 32
In 2014, SMSFs solely in the accumulation phase had estimated average OEs of more than $10,300, while those in pension phase averaged $12,100. A comparison by the types of OE showed that SMSFs in pension phase had higher average expenses across most operating expense types, with the exception of ‘interest expenses within Australia’, ‘interest expenses overseas’ and ‘forestry and managed investment scheme’ expenses33.
As can be expected, graph 19 shows the estimated OE ratio for SMSFs declined in direct proportion to the increased size of the fund. In 2014, SMSFs with $50,000 or less in assets had an average operating expense ratio of 12.1%. This compares to SMSFs with more than $500,000 in assets that had an average of less than 1.4% (see appendix 1, table 22).
32 Calculations based on 2010 to 2014 SAR reported data.33 The remaining labels included in operating expenses are ‘interest expenses overseas’, ‘insurance premiums’, ‘SMSF auditor fee’, ‘investment expenses’, ‘management and administration expenses’ and ‘other amounts’. These and other income and deduction labels are discussed in the annual Taxation Statistics available on the ATO website.
Graph 19: SMSF operating expense ratio, by fund size
The majority of SMSFs had an estimated OE ratio of 1.5% or less (60% of SMSFs in 2014) (see appendix 1, table 23).
SMSF auditors play a major role in regulating SMSFs. In the year ended 30 June 2014, the average audit fee was $714 and the median audit fee was $550, a contributing factor is the inclusion of the non-deductible auditor fee label. Prior to this, the trend decreased each year from 2010 to 2012 for both average and median audit fees (see appendix 1, table 24).
Generally over the five years to 2014, SMSFs reported paying more for audit fees. In 2014, 37% of SMSFs paid less than $500 in auditor fees, compared to 52% in 2010. However only 3% paid $2,000 or more in 2014, slightly less than in 2010 (see appendix 1, table 25).