Self-managed superannuation funds (SMSFs) will bear the brunt of the super reforms announced in the May 2016 budget and that were passed in amended form in November 2016, according to DEXX&R.
The DEXX&R Market Projections Report, which provided projections for each segment in super, retirement, and retail (non-super) investment, said the annual growth in funds under management/advice (FUM/A) in SMSFs was expected to fall from 4.1 per cent to 2.9 per cent per annum due to the budget changes.
Contribution inflows into SMSFs were predicted to fall by $3.4 billion in the 12 months from 1 July 2017, contributing to the slowdown in FUM/A growth for SMSFs in the accumulation phase.
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"SMSFs have been a preferred investment vehicle for those on high incomes, and a commensurately higher capacity for discretionary saving for the past 15 years," the report said.
"Superannuation guarantee contributions, combined with the lower caps applicable to concessional and non-concessional contributions, will erode the gap available for additional discretionary super contributions."
SMSFs were also expected to be most affected by the $1.6 million maximum account balance, with increased flows from SMSFs in the retirement income phase expected to go back into retail and industry fund allocated pensions.
This was due to the fact that the fixed ongoing costs of compliance for an SMSF income stream account was expected to outweigh any cost advantage for an SMSF account with a diminishing balance.
The budget changes would also mean renewed interest in tax advantaged ordinary insurance bonds, especially for higher income earners with a marginal tax rate in excess of the company tax rate applicable to life companies, with any future decrease in company tax rates set to boost the tax advantage of these products.
Industry fund allocated pensions FUM/A was predicted to be $148 billion or 11 per cent of total retirement income assets in 2026, up from six per cent in 2016, while retail allocated pension account FUM is projected to be $381 billion, 29 per cent of total assets, up from 23 per cent in 2016.
SMSF pension accounts were set to hold $609 billion in FUM or 46 per cent of total retirement income assets in 2026, down from 60 per cent in 2016.