How transfer balance caps have affected SMSF growth

According to Rainmaker research, the introduction of transfer balance caps (TBCs) could be resulting in decreased growth and contribution amounts into self-managed superannuation funds (SMSFs). 

With the introduction of the TBC, the amount of tax-free retirement savings was limited to $1.6 million, with amounts above this threshold taxed at 15%.

This had “profoundly changed the nature of the SMSF superannuation segment”, said Alex Dunnin, Rainmaker executive director of research and compliance.

Since its introduction, voluntary top-up member contribution had declined 60%. Members contributed $38 billion in 2016/17 prior to the TBC’s introduction and they then fell sharply for two years.

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In the most recent financial year, member top-up contributions were $15 billion as per figures from the Australian Prudential Regulation Authority (APRA).

“It took the segment two years to regain composure after the 2017 tax shock and start growing again,” Dunnin stated.

“SMSF members no longer seem to see their funds as the place to put their member contributions, but they clearly still see them as a very good place to store vast amounts of family-owned superannuation wealth.”

Additionally, the number of SMSFs established fell one-third in 2018 and 2019, from some 30,000 per year to 20,000 per year, according to Rainmaker.

“There was a recovery in SMSFs being established in 2020/21 although in 2021/22 SMSF establishments fell away again,” Dunnin stated.

“The net effect is that the total number of SMSFs is still increasing, but the rate is slowing.”

Finally, the number of inflows into SMSFs had nearly halved from almost $10 billion in 2017 to $5 billion in 2022. This had led SMSF funds under management to grew by 5.8%, a slower pace than the 6.6% seen by the wider superannuation market.