Care must be taken when using SMSF performance figures, particularly when making comparisons. While the methodology used to estimate SMSF performance resembles APRA’s methodology, the data collected is not the same.
The estimated return on assets (ROA) for SMSFs in the year ended 30 June 2015 was positive (6.2%), continuing the trend of positive ROA over the five-year period (7.7%, 0.3%, 10.2% and 9.7% for 2011 to 2014 respectively).
Graph 17 shows comparisons with rates of return (ROR) reported for APRA funds of more than four members. The performance for APRA funds and SMSFs shows the same trend in estimated returns for the five years to 2015 (APRA reported 8.1%, 0.4%, 14.0%, 11.7% and 8.9% respectively).
Graph 17: Average returns for SMSFs and APRA funds 2011–2015
Graph 18 shows the proportion of SMSFs by their estimated ROA, with an increase in 2015 to the proportion of funds experiencing positive ROA of greater than 0% to 10% (62% of SMSFs). This increase was largely attributed to funds with positive ROA of more than 0% to 5%, increasing to 36% from 24% in 2014.
In turn, the proportion of funds with an ROA of more than 10% decreased to 12% in 2015, which attributes to the decrease in the overall rate of return for that year.
Over the five years to 2015, the majority of SMSFs experienced positive ROA (74% of SMSFs), with the exception of 2012 when most experienced negative ROA (53%).
Graph 18: SMSF return on assets 2011–2015
The estimated SMSF ROA continues to show a direct relationship with SMSF size. Generally, the larger the SMSF asset holding the more improved the ROA (see Appendix 1, table 21).
Graph 19 shows the estimated average ROA by SMSF size for the five years to 30 June 2015. On average, SMSFs with more than $200,000 in assets had a positive ROA in 2015. By comparison, SMSFs with assets of more than $100,000 to $200,000 had a negative average ROA of -0.5%, reversing the trend of positive ROA for funds in this range in 2014 and 2013.
Graph 19: SMSF return on assets by fund size 2011–2015
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SMSF expenses
As with estimated SMSF investment performance data, care must be taken when using expense ratio figures because comparisons may not be meaningful. While the methodology used to estimate the ratios 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 expense ratios figures for 2013 and later years. The increases in SMSF expense ratios from 2012 to 2013 are largely due to these reporting changes.
Prior SMSF overview reports reported on total operating expenses which included certain deductable and non-deductable expense items reported on the SMSF annual return. From 2015 SMSF expenses will be reported as 'total expenses' with a further breakdown of expenses into 'investment expenses' and 'administration and operating expenses'. Refer to the glossary for further information on the expense types included in each category (see Appendix 3).
The estimated average total expense ratio (TE) of SMSFs in the year ended 30 June 2015 was 1.10%, which is consistent with 2014 (1.10%) and 2013 (1.06%). By comparison, the average TE ratio in 2011 and 2012 was 0.65%.
Similarly, the average SMSF total expenses value grew by 88% from $6,000 in 2011 and 2012, to $11,300 in 2013 to 2015.
In 2015, SMSFs solely in the accumulation phase had average TEs of $11,700, while those in pension phase averaged $12,600. A comparison by the types of expenses, showed that SMSFs in pension phase had higher average expenses across most expense types, with the exception of ‘interest expenses overseas’, ‘forestry and managed investment scheme expenses’, and ‘other amounts’.
Analysis of estimated average expense ratios by type of expenses for ‘investment expenses’ and ‘administration and operating expenses’ in 2015, showed a consistent ratio of 0.60% and 0.50% respectively, which were consistent with the five year trend from 2011 to 2015 (see Appendix 1, table 23).
Over the five years to 2015, the average administration and operating expenses value grew by 80% from $3,000 in 2011 and 2012, to $5,300 in 2013 to 2015. SMSFs solely in the accumulation phase had average administration and operating expenses of $4,500, while those in pension phase averaged $6,600.
By comparison, the average investment expenses value grew by 50% from $7,600 in 2011 and 2012, to $11,300 in 2013 to 2015. SMSFs solely in the accumulation phase and solely in the pension phase both had average investment expenses of $12,100.
Graph 20 shows the estimated expense ratios by type generally declined in direct proportion to the increased size of the fund. In 2015, SMSFs with $50,000 or less in assets had the highest average expense ratios (for total expenses, administration and operating expenses, and investment expenses), of 12.6%, 8% and 5% respectively. This compares to SMSFs with more than $500,000 in assets that had an average expense ratio of 1% or less across all expense types (see Appendix 1, table 22).
Graph 20: 2015 SMSF expense ratios by fund size
The majority of SMSFs had an estimated TE ratio of 1.5% or less (60% of SMSFs in 2015) Similarly most funds had an estimated administration and operating expense ratio and an investment expense ratio of 1.5% or less, 77% and 82% of SMFs respectively (see Appendix 1, table 23 and supplementary table 23 in XLS file).
SMSF auditors play a major role in regulating SMSFs. In the year ended 30 June 2015, the average audit fee was $754 and the median audit fee was $550, continuing the upward trend since 2013. Prior to this, there was a downward trend for both average and median audit fees (see Appendix 1, table 24). A contributing factor to this change is the inclusion of the non-deductible auditor fee label from 2013.
Generally over the five years to 2015, SMSFs reported paying more for audit fees. In 2015, 37% of SMSFs paid less than $500 in auditor fees, compared to 54% in 2011.
From 2012 to 2013 there was a shift in the proportion of funds paying less than $500 in auditor fees to funds in the higher auditor fees ranges (by 18%), with most moving to the $500 to $1,000 range. While only 3% of SMSFs paid an auditor fee of $2,000 or more in 2015, which is consistent with the five-year average to 2015 (see Appendix 1, table 25).
Compliance
As part of an annual audit, SMSF auditors must submit auditor contravention reports (ACRs) to us for prescribed SMSF contraventions. Reports range from administrative contraventions to more serious contraventions, such as breaches in relation to investments in in-house assets.
Generally, the percentage of the SMSF population with ACRs remains relatively stable at approximately 2% of all SMSFs each year.
In the year ended 30 June 2016, 7,900 SMSFs had ACRs lodged with 20,500 contraventions. This was a decrease from the previous year of 4% in the number of SMSFs with an ACR and a decrease of 7% in the number of contraventions.
To 30 June 2016, just under half of all contraventions were reported as rectified. The most commonly reported contraventions continued to be loans or financial assistance to members (22%), while in-house assets and separation of assets constituted 19% and 13% respectively. In monetary terms, the latter two contraventions represented 29% and 25% of the reported contraventions up to 30 June 2016 respectively (see Appendix 1, table 26).