Millennials want more control of retirement savings

Self-managed super funds – once the domain of mainly high-income, older investors – are becoming increasingly popular with the young, who want to take more control of their retirement savings.

The move comes on the back of droves of millennials becoming newbie sharemarket investors during the pandemic, when many were locked down for long periods with the time to research potential investments.

More young people are deserting traditional super funds in favour of creating their own SMSF.Credit:Simon Letch

Armed with new knowledge and share trading skills, they now wish to become more engaged with their retirement savings for the first time. Big cuts in the costs of setting up and running a do-it-yourself fund is also fuelling their popularity.

Figures from the Australian Investment Exchange (AUSIEX), which clears shares trades for financial services providers, together with SMSFs, shows the trend is now firmly established among funds that use its services.

Millennials with a SMSF who are self-directed, and not using the services of a financial adviser or accountant, reached 16 per cent of all non-advised funds established using the AUSIEX service in June.

That is up from about 10 per cent in the two years before the pandemic.

‘We are seeing a new younger cohort growing in knowledge and confidence and seeking to take greater control of their investments.’

Brett Grant, head of AUSIEX product and trading, says at the start of 2020, during the initial COVID lockdowns, “we started to see strong growth in new SMSF account openings by millennials”.

“It appears we are seeing the emergence of a new younger cohort of active investors growing in knowledge and confidence and seeking to take greater control of their investments,” Grant says.

Last year, online share trading platform Stake – a site popular with the young – rolled out set-up and administration services for its clients to create SMSFs.

The fintech start-up has more than 500,000 users with an average age of 35. It offers trading in US and Australian listed securities, such as shares and exchange-traded funds (ETFs).

Stake’s “standard” SMSF administration fee is just $990 a year – far less than typical fees. DIY funds with the standard service can only hold listed securities held through the Skate platform.

The platform also offers “SMSF Plus”, which has a flat fee of $2640 a year, and allows users to hold other assets, such as precious metals, cryptocurrency and real estate in their DIY super funds.

Figures from the Australian Taxation Office, which regulates SMSFs, shows that of all the funds established in 2019-20 – the latest available data – 13.5 per cent had members aged under 35.

A report by researcher Investment Trends finds the sources of influence that prompt people to start an SMSF is also changing. Accountants and financial advisers are losing traction, with “word of mouth” and investors “conducting their own research on the internet” taking over, it says.

In an effort to retain those with higher super fund account balances from starting their own DIY fund, large super funds have been adding member-directed investment options. Members of these funds can now invest in their choice of Australian shares, ETFs, term deposits or other external managed funds.

The fixed costs of running an SMSF are generally higher than those of large super funds. That means the cost of DIY funds for those with small balances can be high, impacting how much their members accrue when they retire.

A University of Adelaide study found the comparative performance of SMSFs starts to fall when balances dip below $200,000, and becomes more pronounced for lower balances.

Almost 40 per cent of SMSFs established in 2019-20 had assets of less than $200,000, ATO figures show. The average taxable income for members aged 25 to 34 in the financial year was $94,973, and $56,372 for those aged under 25.

However, Ciara Conway, product specialist at Stake Super, counters that there is a misconception that $200,000 is required to start a cost-effective SMSF. She says the high admin fees that accountants traditionally charge has likely been a large influence in arriving at that figure.

“Stake Super’s low annual fee opens the door to younger investors to start an SMSF and control their super, as the cost is competitive with fees charged by [large] super funds,” Conway says.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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