ATO Data Analysis on SMSF and APRA Superannuation Accounts

Transcription

1 DATA61 ATO Data Analysis on SMSF and APRA Superannuation Accounts Zili Zhu, Thomas Sneddon, Alec Stephenson, Aaron Minney CSIRO Data61 CSIRO e-publish: EP CSIRO Publishing: EP Submitted on 14 th September 2015 Last modified on the 6 th May 2016 This report is produced for the CSIRO Monash Superannuation Research Cluster

2 Executive summary This report outlines some of our analysis of the Self Managed Super Fund (SMSF) and standard industry superannuation funds regulated by the Australian Prudential & Regulation Authority (APRA). The information dataset on the SMSF and APRA superannuation accounts is provided by the Australian Taxation Office (ATO) to the CSIRO Monash Superannuation Research Cluster for research into a randomly sampled 150,000 members with APRA and SMSF accounts in 2004, and their subsequent changes from 2004 to The findings of this report are: The median account balance in an SMSF ($420,000) is substantially higher than the account balance in an APRA regulated fund ($33,000). The median account balance in retirement generally falls with age for both SMSF and APRA accounts. For SMSF only accounts, the median values of the SMSF balances start to fall around the age of 75, whereas the APRA only account balances start to fall from the age of 65. For accounts with medium and higher balances, there are far more account holders switching from APRA to SMSF accounts than from SMSF to APRA accounts. For accounts with high and very high balances, the rate for switching from APRA to SMSF accounts is three to four times of the rate for switching from SMSF to APRA accounts. The age cohort of 45 to 65 are most likely to switch. The shape and spread of the age distributions for people switching are very similar for switches from APRA to SMSF and from SMSF to APRA. On investment performances of the SMSF and APRA accounts, the median returns of APRA accounts have a higher volatility as compared with SMSF accounts. Both SMSF and APRA accounts experienced large negative returns between 2007 and The contribution rate as a percentage of the account balance for SMSF members is consistently lower than for APRA members. This is attributable to the smaller balances of APRA accounts leading to a higher contribution rate for APRA accounts for the same contribution amount. SMSF account holders contribute a significantly larger annual amount in dollar terms to their accounts than APRA account holders during the important ages of 50 to 65 years. For SMSF account holders, their annual contribution amount is doubled from the age of 50 to the age of 62, whereas the annual contribution to APRA accounts stays the same for the same period. From the age of 62 to 65, both SMSF and APRA account holders progressively make less annual contribution in dollar terms before the retirement age of 65. At 70 and 71 years old respectively, APRA and SMSF account holders cease their contribution. The ATO dataset shows that the majority of the SMSF members withdraw at or near the minimum withdrawal rates as regulated by the government for APRA and SMSF account holders. In 2011, when the regulated minimum withdrawal rates were lowered, SMSF account holders did not reduce their withdrawal rates accordingly, which can be interpreted as SMSF account holders preferring to maintain a certain standard of living even when it is possible to withdraw less. The withdrawal pattern supports the finding that the majority of SMSF account holders maintain their SMSF as a pension account but withdraw at or more than the regulated minimum rates there is no evidence to suggest SMSF account holders withdrawing lump sums, and thus depleting their SMSF balances early in retirement. Detailed analysis data in tabulated form is also provided in the appendices of this report. This report is the outcome of research activities from October 2013 when ATO and CSIRO began scoping data until the final version of this report is completed in May ii

3 CSIRO Data61 Copyright and disclaimer 2016 CSIRO To the extent permitted by law, all rights are reserved and no part of this publication covered by copyright may be reproduced or copied in any form or by any means except with the written permission of CSIRO. Important disclaimer CSIRO advises that the information contained in this publication comprises general statements based on scientific research. The reader is advised and needs to be aware that such information may be incomplete or unable to be used in any specific situation. No reliance or actions must therefore be made on that information without seeking prior expert professional, scientific and technical advice. To the extent permitted by law, CSIRO (including its employees and consultants) excludes all liability to any person for any consequences, including but not limited to all losses, damages, costs, expenses and any other compensation, arising directly or indirectly from using this publication (in part or in whole) and any information or material contained in it. iii

4 Table of Contents Executive summary ii Table of Contents... iv Introduction... 1 ATO dataset and Analysis Process... 1 Privacy restrictions... 2 Summary analysis of ATO data on SMSF and APRA super accounts... 2 Account Closure of SMSF and APRA Funds... 4 Switching between SMSF and APRA accounts... 5 Median balances of super accounts... 8 Growth rate for super accounts SMSF and APRA Funds Contribution Rates SMSF withdrawal rate distribution SMSF median withdrawal rate by age and by account balance Summary Acknowledgement Reference Appendix A: ATO data by age and year 26 Appendix B: Selected data tables iv

5 Introduction The number of Self Managed Superannuation Funds (SMSFs) has increased substantially in recent years. Australian Taxation Office (ATO) published data shows that from 2004 to 2014, the number of SMSFs has increased from 270,000 to more than 534,000 in During the same time period, the number of SMSF members has increased from 523,000 to more than 1 million. On average, over 25,000 net new SMSFs are established each year. Currently, over $500 billion of assets are controlled by SMSFs. To gain more insight into the SMSF sector, it is useful to compare SMSFs with conventional superannuation funds such as industrial superannuation funds that are regulated by the Australian Prudential & Regulation Authority (APRA). To contribute to the activities of the CSIRO Monash Superannuation Research Cluster, the Australian Tax Office (ATO) provided CSIRO with a large dataset of individual and self managed superannuation fund (SMSF) annual return information to facilitate analysis of APRA regulated superannuation funds and SMSFs. The analysis of SMSF and APRA fund activity can shed light on how older Australians behave in relation to withdrawals, contributions and maintenance of their superannuation entitlements. The ATO data can also shed light on any potential switching behaviour between an individual s SMSF and APRA funds. This study represents the first time the original raw ATO return data has been analysed directly. In this report we provide the outlines of the analysis of this ATO data, and also detail some insights into the behaviour of older Australians in relation to their superannuation fund entitlements. ATO dataset and Analysis Process The ATO dataset incorporated the annual personal tax return data between 2004 and 2014 of 150,000 Australians aged between 7 and 90 in Individuals are only included in the data if they have a nonmissing balance value (either APRA or SMSF or both) in Of the 150,000 individuals, 92,421 have data available in every year, whereas 993 only have data for the year The distribution of available account balances by age and income year is provided in Appendix A. The tax return data provided the following information: gender; year of birth of the member; balance of any self managed super account held by the individual as reported in the year of the return; personal contributions to any super account in the year of the return, split by SMSF and APRA funds; total contributions (both personal and employer) to any super account in the year of the return; split by SMSF and APRA funds; investment earnings or losses on accounts held as reported for the year of the tax return (available ONLY for SMSF accounts); total amount of benefit payments received (if any) as reported in the year of the return (available ONLY for SMSF accounts). Split into the categories of lump sums, pensions and transition to retirement income streams; aggregate balance of all APRA super fund accounts held by the individual as reported in the year of the return. From the above information, the following data was imputed: age of the member in the year of the tax return; withdrawal rate: proportion of account balance paid out during the income year relative to the SMSF account balance at the start of the income year (available for SMSF accounts only). Over the 11 years, there are a total of 1,587,576 records, including some blank records for some years where there was missing data. The dataset was chosen on the basis that, in 2004, of the 150,000 individuals within the dataset, 50,000 had solely an APRA account, 50,000 had solely an SMSF account and 50,000 had both an 1

6 APRA account and an SMSF account in that year. Across the dataset, this resulted in a mix of 31,960 having SMSF data only, 47,432 having APRA only, and the remaining 70,608 having both APRA and SMSF data throughout the time period. The dataset is sampled for 150,000 individuals with super accounts at Privacy restrictions Due to privacy restrictions imposed by the ATO, balance data figures are rounded to the nearest $1000 and account values are censored above $5,000,000. These restrictions impact the accuracy of some of the data, such as returns and withdrawal rate calculations. The insights provided by analysis of these figures should be treated with some caution. For example, all figures below $500 are rounded to zero, severely limiting the accuracy of median return rate and withdrawal rate calculations. Summary analysis of ATO data on SMSF and APRA super accounts In total, the SMSF account tax return data has 920,186 account balances. Of these, 192,247 are zero. The APRA account tax return data has 919,531 account balances. Of these, 180,273 are zero. A table of zero balances and income year for SMSF data is provided below: Table 1 Frequency of zero balances for SMSF account balance data by year Non-Zero Zero Compared to SMSF data, frequencies within the APRA data are more constant over time, whilst there is relatively more APRA data than SMSF data in the earlier years. A table of zero balances and income year for APRA data is provided below: Table 2 Frequency of zero balances for APRA account balance data by year Non-Zero Zero The trend of an annual reduction in zero balance accounts may be explained by two factors. Firstly, the substantial level of initial zero balance SMSF accounts is likely to be due to the high proportion of individuals within the dataset who do not have an active SMSF account (or an extremely low SMSF balance rounded to $0) in 2004 but open one during the subsequent decade and are therefore recorded as holding a zero balance account for all years before opening the SMSF account and transferring funds from their APRA account which existed at Secondly, due to data restrictions it is assumed that all accounts with a balance of less than $500 are rounded to a zero balance. Therefore, the number of zero balance accounts declines throughout the decade and equivalently the number of non zero balances increases as accounts receive additional contributions and some accounts become considered non zero balances once their level exceeds $500. The distribution of non zero account balances by age is provided below for both the SMSF and APRA account data: Figure 1 Distributions of non zero account balances by age for SMSF Only and APRA Only accounts 2

7 It can be clearly seen that the distribution of APRA data by age is more evenly spread than that of the SMSF data, and that the SMSF data has a higher median age, indicating that SMSF accounts are opened by individuals of older ages than for APRA accounts as expected. The hump on the left of the APRA distribution reflects the dataset capturing new entrants to the workforce opening super balances throughout the 11 year window. For a more accurate presentation of the age distribution of APRA and SMSF account holders, it is more useful to look at the age distribution for a particular year. For years 2004 and 2014, we plot the age distributions for APRA account holders in the following two graphs: Figure 2 Comparison of age distributions for APRA Only accounts in 2004 and 2014 As expected, the age distribution of APRA account holders is more evenly spread out from the ages 19 to 50, this reflects the age distribution of the general working population more closely, as 2004 was 12 years after the introduction of compulsory superannuation contribution system in Australia, and the super system had been fully established. The following graph on the right displays the age distribution of the working population in 2004 as reported by Australian Bureau of Statistics, whereas the graph on the left shows the age distribution of the APRA accounts but grouped into the equivalent 10 year cohorts. The two graphs are very similar even though they have very different units for the vertical axis, which can be used to indicate the validity of the ATO data. Labour force by age Number of persons (000) years years years years Age group years 65 years and over Figure 3 Comparison of age distribution of APRA Only accounts and Labour Force in Australia in

8 Because the APRA and SMSF account holders are sampled first for year 2004, and the same holders are followed in time longitudinally from 2004 to 2014, it is as expected that the age distribution for 2014 is similar to the 2004 distribution, except that the age has increased correspondingly by 10 years. For SMSF account holders, the following two graphs show the corresponding age distribution for 2004 and 2014: Figure 4 Comparison of age distributions for SMSF Only accounts in 2004 and 2014 The age distribution of the SMSF account holders displays a highly skewed distribution for In 2004, the highest number of SMSF account holders is in the years of age group, and numbers rapidly decrease after the age of 62. The number of people with SMSF accounts increases linearly from the age of 45 to 60 years of age. Account Closure of SMSF and APRA Funds Investigation of the closure of superannuation accounts (i.e. a positive balance followed in the next and subsequent years by a zero balance) can provide insight into when people are exhausting their superannuation entitlements. Longitudinally, the following two graphs show the rate of closure of SMSF and APRA accounts respectively for all account holders in the dataset across the ten financial years of the dataset for which full information is available: Figure 5 Comparison of annual account closure rates for SMSF and APRA data by year 4

9 For the SMSF accounts, it can be observed that the rate of closure increases rapidly from 1.3% in 2010 to the highest value of 3.3% in Incidentally, the rate of closure decreases from 2005 until 2007 but then spikes somewhat in 2009 to over 2%, at the time that the global financial crisis ( the GFC ) was at its worst, possibly due to small balances falling below $500 due to market falls and not recovering. The steady increase in closure for SMSF accounts from 2010 to 2013 is interesting, we assume that the increased closure of SMSF accounts was the consequence of bad performances experienced by SMSF during the GFC, and also due to the more stringent compliance requirement imposed. The rate of closure for APRA accounts is highest in 2005 at over 4% and gradually decreases to less than 2% in 2011, before it slowly increases to 2.3% in The reduced rate of closure in can be attributed to people having to postpone retirement due to superannuation loses during the GFC. It will be interesting to see if the longer term trend for the closure rate of APRA accounts will revert to the steady level of 2.8% achieved from 2007 to Switching between SMSF and APRA accounts Investigation of superannuation account switching behaviour (the movement of the majority of total superannuation assets from one form of account to another) can provide insight as to the trend towards greater self management of funds at later ages and the impact of superannuation regulation changes upon this trend. In the graphs below, the behaviour of transferring funds to an SMSF from an APRA account is only considered a switch when the proportion of an individual s combined (SMSF and APRA) account balances which is invested in an SMSF goes from below 80% to above 80%. Similarly, the definition of switching from SMSF to APRA involves the proportion of an individual s combined account balances in APRA rising from below 80% to above 80%. The graphs below illustrate switching behaviour by age over the 10 year time span: Figure 6 Comparison of annual account switching rates by age It can be observed clearly from the above two graphs that the proportion of people switching from APRA accounts to SMSF accounts is generally much higher than in the opposite direction. Further, it can be seen that the age distribution of those switching from APRA accounts to SMSF accounts is more heavily weighted toward the 44 to 62 age bracket. In stark contrast, the switching distribution from SMSF to APRA is a much flatter spread over different age groups. This would suggest that switching to SMSF is generally undertaken when the account balance is large enough for the switching to be worthwhile (as the greater control offered by SMSF accounts has a trade off of increased administrative costs relative to APRA account), whereas people switching to APRA do not display this propensity. In fact, for the age of years, the reverse has happened: a higher proportion of SMSF holders have switched to APRA accounts: possibly due to low SMSF account 5

10 balances not being worthwhile to retain considering the management time and cost or a lack of time due to other commitments early in life. Longitudinally, the following charts illustrate the switching behaviour of account holders according to the year of switching. It can be seen in the graph on the left that there was a larger number of account holders switching from APRA to SMSF in 2007, at a rate of 2.7%. However, before 2007 and after 2007, the switching from APRA to SMSF was fairly stable, 1% before 2007, and 0.5% after The major switching behaviour and/or establishment of SMSF accounts in 2007 is likely to be related to the capacity to invest up to $1,000,000 into superannuation before 30 June Figure 7 Comparison of annual account switching rates by year The switching rate from SMSF to APRA accounts peaked at 1.1% in 2004 and decreased to its lowest level of 0.15% in Throughout the final 4 years of the dataset from 2010 to 2013, the switching rate from SMSF to APRA accounts has steadily grown to 0.45%. To further understand switching behaviour between APRA and SMSF accounts, below we graph the age distributions for APRA to SMSF and SMSF to APRA account switching, expressed as a proportion of the total number of records at that age for APRA and SMSF accounts respectively, split into quantile by each member s highest total account balance throughout the ten year period. These quantiles of balance are set in 20% bands as: very low (under $54,000), low (between $54,000 and $174,000), medium (between $174,000 and $389,000), high (between $389,000 and $810,000) and very high (over $810,000). 6

11 7

12 Figure 8 Comparison of annual account switching rates by age for each balance quantile As can be readily observed, for accounts with very high balances the rate for switching from APRA to SMSF accounts is around 4 times as for the switch in the opposite direction for the 45 to 62 age cohort. For accounts with High Balances the rate for switching from APRA to SMSF accounts is about 2.5 times as for the switch in the opposite direction for the 45 to 61 age cohort, whereas for accounts with a Medium Balance the rate for switching from APRA to SMSF accounts is about 2 times as for the switch in the opposite direction for the 45 to 65 age group. For accounts with a Low Balances the overall rate for switching from APRA to SMSF is almost the same as that from SMSF to APRA and, in fact, slightly more SMSF account holders of 60 or older switch to SMSF than to APRA. As to be expected, for accounts of Very Low Balances the rate of switching from SMSF to APRA accounts is roughly twice as many as in the opposite direction. In summary, for accounts with medium and higher balances, there are far more account holders switching from APRA to SMSF accounts than from SMSF to APRA accounts. Additionally, the higher the account balance, the older the age at which people tend to switch. The age distributions for people switching are very similar for switches from APRA to SMSF and from SMSF to APRA. Median balances of super accounts The increased longevity of SMSF accounts as compared to APRA accounts can be partially attributed to the higher balances apparent in SMSF accounts. To demonstrate the disparity in median account balances, below are boxplots of balances for SMSF and APRA accounts excluding any balances of $0, where the median value is indicated by the solid black line, and 25% and 75% quantiles are indicated by the lower and upper horizontal sides of the box, and the whiskers are used to indicate the interquartile range of that quantile multiplied by 1.5. Balances over $5 million are taken to be equal to $5 million. Due to rounding in the data for privacy reasons, the smallest non zero balance is $1000. The median of non zero balances is $420,000 for SMSF and $33,000 for APRA are shown in the figure below (the exact numerical values are tabulated in Table 1 of Appendix B): 8

13 Figure 9 Boxplot of account balances for SMSF and APRA data To further demonstrate this substantial disparity, below are boxplots of account balance for both SMSF and APRA accounts, but split by age. Outliers are not shown. Boxplot widths are proportional to the number of records in the dataset at that age. 9

14 Figure 10 Boxplots of account balance for SMSF Only, APRA Only, SMSF Both and APRA Both accounts, split by age It can be observed that SMSF balances are substantially higher at all ages than APRA account balances. It can also be observed that the median account balance level generally falls with age in retirement for both SMSF and APRA accounts. For SMSF only accounts, the median values of the SMSF balances start to fall around the age of 75, whereas the APRA only account balances start to fall from the age of 65, though the median 10

15 balance starts to rise from the age of 70 though the data beyond the age of 70 becomes sparse and in our view less reliable for reaching conclusions. The other notable trend is that the APRA account balances stay rather flat with increasing age, whereas the SMSF account balances increase steadily with age, but reach a peak at around the age of 73. The figures relating to these boxplots of balances by age can be found in tables 2 to 5 of Appendix B. The above account balance boxplots can be split into representative years to give a more accurate indication of trends across the timeframe of 2004 to For easy interpretation in the new graphs, we have also plotted below the balances according to age brackets. For more information, the below plots of balances by age bracket and year are tabulated in Tables 6 to 25 of Appendix B. 11

16 Figure 11 Comparison of boxplots of account balances by age group for SMSF Only and APRA Only accounts For 2005, 2009 and 2013, the median values of SMSF only accounts generally decrease from the age of 70, whilst from the age of 65 to 70 the SMSF account balances normally increase. For the APRA only accounts, however, for years 2004 and 2009 the median APRA account balance dropped significantly from the age of 65 onward, indicating a large number of possible lump sum withdrawals and/or closures. However, for the year 2013 the median account value stays relatively flat until the age range of 75 to 78, though the number of record data becomes much smaller here, which may be explained as caused by large withdrawals/closures of accounts with smaller balances. Growth rate for super accounts At a superficial level, it is possible to assess the relative performance of SMSF account balance growth compared to the balance growth of APRA accounts purely on the basis of the annual change of account balances. Provided below is a plot of median growth in account balances (taking the difference of the last two years balances and dividing it by the previous year s balance) by age, ignoring zero balances. The figures for this plot can be found in Table 26 of Appendix B. The lines are solely the median rate of change in account balances from one year to the next for each age. For example, for APRA accounts the average change in account balances from age 65 to age 66 is approximately 12.5%. This chart indicates that the median growth rate in APRA accounts balances is always higher relative to that of SMSF accounts. This is consistent with the overall lower balances of the APRA accounts and a higher growth rate coming directly from new contributions into the APRA accounts. Contribution levels would also explain the higher growth rate at younger ages, when APRA account balances are still small. From the age of 65, the rate of growth in account balances for both APRA and SMSF decrease noticeably, which can be attributed to withdrawals taking place after retirement or due to transition to retirement. 12

17 Figure 12 Median account annual return rate by age for SMSF and APRA accounts To provide a clearer picture of the investment returns on the APRA and SMSF accounts, contributions should be excluded from any calculations. Plotted below are median averages for an investment returns proxy: the rate of change in account balance excluding any contributions. This calculation provides the change in account balance not attributable to contributions from one year to the next for each age (i.e. only due to investment returns and withdrawals). Exact figures for the below plot are provided in Table 27 of Appendix B. Figure 13 Median account annual return rate (excluding contributions) by age for SMSF and APRA accounts 13

18 It can be seen again from this above graph of investment returns (note: withdrawals impact the calculation of the return proxy here), that the proxy returns of APRA accounts are higher overall for each year of age relative to SMSF accounts. However, it is observable that account returns are negligible or even negative for most ages beyond 60. This result must be caveated by recognising that data limitations due to rounding limit the accuracy of these return calculations as small returns are effectively rounded to zero. It may indeed be the case that small returns were achieved but are imperceptible given current data restrictions. For longitudinal insight, median averages for the return proxy by income year are provided below. This plots the account balance return for each year attributable to account growth without contributions but including investment returns and withdrawals. This was obtained by only assessing the return rate distribution for 50 to 54 year olds cohort, where it is extremely unlikely that withdrawals would occur, (withdrawal data for APRA accounts is not available in the ATO data). The figures for these plots are provided in Tables 28 and 29 of Appendix B. It can be seen here that APRA and SMSF account balance returns are very similar when contributions are ignored, but that APRA account returns are more volatile than SMSF returns (higher in positive return years and lower in negative return years). The effect of the global financial crisis is also obvious in this plot: the APRA accounts have substantial negative median return rates during 2007 and This higher volatility for APRA accounts may indicate that APRA funds generally take more investment risk than SMSFs. Figure 14 Median account annual return rate (excluding contributions) by year for SMSF and APRA accounts 14

19 SMSF and APRA Funds Contribution Rates The graph below shows the median contribution rate for APRA and SMSF accounts at different ages over the 10 year span of the dataset. The contribution rate is calculated as the annual contribution amount as a percentage of account balance (in the graph, it is expressed as the ratio of contribution to account balance i.e = a contribution of 10% of pre contribution account balance). From this graph, we observe that the median contribution rate into APRA accounts is considerably higher than that into SMSF accounts across all age groups. The figures for this graph are provided in Table 30 of Appendix B. Figure 15 Median contribution ratio by age for SMSF and APRA accounts The large difference in the median contribution rate between SMSF and APRA accounts can be attributed to the fact that balances of APRA accounts are much smaller, and therefore the APRA annual contribution is a larger proportion of account balance but is actually a smaller dollar amount than the SMSF contribution. In real dollar terms, the below graph shows the median annual contribution amounts for SMSF and APRA accounts at different ages during the 10 year period. As shown in the graph below, the median annual contribution amount to SMSF accounts is significantly larger than to APRA accounts. A more interesting point to note is that for SMSF holders, the median annual contribution dollar figure doubles from the age of 50 to the age of 62, whereas the median contribution dollar figure to APRA accounts stays the same from the age of 50 to 62. From the age of 62 to 65, both SMSF and APRA account holders progressively make lower contributions in dollar terms before the retirement age of 65. At 70 and 71 respectively, the median APRA and SMSF account holder stops contributing to their accounts. The figures for this graph are provided in Table 31 of Appendix B. 15

20 Figure 16 Median contribution dollar amount by age for SMSF and APRA accounts To further investigate the changing contribution behaviour of APRA and SMSF account holders, we plot below the median contribution amounts in dollar terms of those of ages 50 and 60 years from 2005 to 2013 (the figures for these plots are provided in Tables 32 and 33 of Appendix B): Figure 17 Comparison of median contribution dollar amount by year for SMSF and APRA accounts aged 50 and 60 years As could be expected, SMSF account holders of age 60 years make significant larger contributions to their SMSF accounts than 50 year old SMSF account holders, despite the plot also revealing that at the beginning of the 10 year period, in 2004, their contribution amounts were similar in dollar terms. Interestingly, for 60 year old SMSF holders highest contributions were made in The jump in median contribution amount in 2007 can possibly be attributed to the occurrence of the aforementioned deadline for tax free treatment of SMSF contributions in the middle of Compared with the 60 year old cohort, the 50 year old SMSF account holders maintain a relatively constant contribution in dollar amount throughout the period of 16

21 interest from 2004 to Further, for the APRA account holder group, both the 50 and 60 year age groups had fairly constant contributions in dollar terms across the period from 2004 to We can also examine contribution behaviour in terms of median contribution rates, as in the two graphs below (the figures are tabulated in Tables 34 to 44 in Appendix B). As can be seen clearly from the two graphs below, the median contribution rate for SMSF members is consistently lower than that for APRA members. Figure 18 Figure 19 Comparison of median contribution rate by year for SMSF and APRA accounts aged 50 and 60 years Further, for both the SMSF and APRA account holder groups there is an obvious overall downward trend in median contribution rate from 2005 to 2013 for the 50 year age group, possibly due to a general trending upward of account balances across this period. However, for the 60 year age group the median contribution rate by SMSF members increases progressively from 4% in 2005 to 10% in 2007 before receding to 3% in 2013, whereas the median contribution rate of 60 year old APRA account holders replicates that of 50 year old APRA members in displaying an overall downward trend across the period. SMSF withdrawal rate distribution Due to a paucity of data, it is not possible to undertake any direct APRA account withdrawal activity analysis utilising the ATO dataset provided. However, for SMSF accounts, the dataset allows the calculation of annual withdrawal rates as outlined in the ATO dataset and Analysis Process section above; the withdraw proportion is calculated as: Withdrawal Proportion = (lump sum + income stream payment) / starting account balance The graph below plots the 25% quantile, 50% quantile (median) and 75% quantile values for the withdrawal rate distribution of SMSF accounts at each year of age. In the graph, it can be observed that from the age of 65 to 68 the median withdrawal rate increases from about 4.5% to 5.5% and stays quite flat at 5.5% within the age range of 68 and 75. From the age of 75 upwards, the withdrawal rate increases progressively to 6% at the age of 80 before increasing substantially to 7% at the age of

22 Figure 20 Quartiles of SMSF median withdrawal rate by age A histogram of SMSF withdrawal rates for each member is provided for four distinct age groups (60 to 64, 65 to 69, 70 to 74 and above 75 below. Small frequencies above 30% (0.30) have been excluded as reflecting account closure rather than income drawdown. In the dataset, there are a number of 100% figures corresponding to withdrawals of the entire remaining account. The withdrawal frequency distribution indicates the number of account holders withdrawing income at a particular rate. Government regulated minimum withdrawal rates are not plotted because the age grouping is across the 10 years period ( ) when the minimum withdrawal rates were changed three times. 18

23 Figure 21 Histograms of SMSF Only withdrawal rate distributions, split by age group We can further split the withdrawal proportions by year for different age brackets to get a more accurate view of whether the withdrawal proportion (rate) in the ATO dataset closely follows the minimum legislated withdrawal rates as detailed here: Table 3 Legislated minimum superannuation account withdrawal rates Age Percentage of account balance Under 65 4% 2% 3% 4% % 2.5% 3.75% 5% % 3% 4.5% 6% % 3.5% 5.25% 7% % 4.5% 6.75% 9% % 5.5% 8.25% 11% onwards 95 or more 14% 7% 10.5% 14% 19

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25 Figure 22 Histograms of SMSF Only withdrawal rate distributions in selected years, split by age group (legislated minimum withdrawal rate for age group in relevant year in blue) 21

26 SMSF median withdrawal rate by age and by account balance To gain further understanding of the withdrawal behaviour of SMSF account holders, we can plot the median withdrawal rate by age and by level of account balance within the ten year period of Below are three graphs of the median withdrawal rate (proportion) by age for all SMSF account holders for the years 2008, 2011 and 2014 (the dataset does not allow withdrawal rates to be calculated before 2008). In the three graphs, the government regulated minimum withdrawal rates for various ages are plotted in blue coloured lines. It can be observed that from the age of 66, the withdrawal rate is generally flat at around 5%, and steadily increases towards higher ages, except for in 2011 when the withdrawal rate actually decreases slightly from the age of 72, which can be attributed to the regulation for lower minimum withdrawal during the financial crisis. Comparing the withdrawal patterns in 2011 and 2014, we can see the median withdrawal rates in 2014 are almost identical to the regulated minimum withdrawal rates, whereas in 2011, the median withdrawal rates are much higher than the regulated minimum withdrawal rates when these minimum rates were halved during the GFC for year 2011, which indicates that SMSF account holders do not change their withdrawal behaviour even when the regulated minimum withdrawal rates are lowered. The figures for the below plots are available in Tables 45 to 51 of Appendix B. Figure 23 Median SMSF withdrawal rate by age for selected years 22

27 Of more interest is the same withdrawal rate as plotted by age, but grouped by account balance size (based on the maximum balance of each member within the 10 year time period). Below are plotted median SMSF withdrawal rates by age, but now split into five 20% balance quantiles (Very High, High, Medium, Low and Very Low) based on the maximum balance of each individual. Very high is above $1,111,000 (80 th percentile), high is in the interval [$555,000, $1,111,000) (80 th to 60 th percentile), medium is in the interval [$266,000, $555,000) (60 th to 40 th percentile), low is in the interval [$84,000, $266,000) (40 th to 20 th percentile), and very low is below $84,000 (20 th percentile and below). The figures for the below plots can be found in Tables 52 to 56 of Appendix B. 23

28 Figure 24 Median SMSF withdrawal rate by age for each quantile of account balance The plot for very low account balances (less than $84k) is very irregular, and probably reflects the small number of sample data in this category for SMSF. From the low balance quantile of $84K 266K to the very high balance quantile of more than $1.1M, the plots demonstrate that median withdrawal rate generally increases with age independently of account balance size, but that the withdrawal rate at each age trend downwards with increases in account balance size. This may be attributable to the logic that each retiree is primarily obliged to spend a certain minimum income in dollar terms to support themselves in retirement independently of their account balance size. It would also be explainable that rates increase with age, one reason being due to government regulation on minimum withdrawal rates for different age categories (which rise with age), and a second reason being that the same minimum withdrawal dollar amount represents a larger proportion of account balance as the account balance decreases with age. Interestingly, the rate of withdrawal increases substantially from the age of 85, except for the Medium Balance size of $266K to $555K. Because data for over the age of 85 years becomes sparse, and therefore not reliable, we can only note that from the age of 85, the median withdrawal rate does increase substantially, but still below the 9% minimum withdrawal rate. Summary This report is the output from the study beginning in October 2013 when ATO and CSIRO set up specifications for the required dataset until the final version of this report is completed in May The objective of this study is to analyse the SMSF and APRA data supplied by the ATO to gain some insight into the behaviour of individuals with SMSF and APRA superannuation accounts. Switching behaviour between SMSF and APRA accountholders is a major issue for analysis. The other interesting topic for this study is to compare the general performance of SMSF accounts with those of APRA regulated super funds. At different stages of retirement, the behaviour for withdrawing money from SMSF accounts is an important topic of this study. In this paper, we have presented some analysis of the ATO data on SMSF and APRA account balances. The analysis exclusively presents median values for a sample of 150,000 members with APRA and SMSF accounts in 2004, and their subsequent changes from 2004 to The interesting findings of this analysis are: The median account balance in an SMSF ($420,000) is substantially higher than the account balance in an APRA regulated fund ($33,000). The median account balance in retirement generally falls with age for both SMSF and APRA accounts. For SMSF only accounts, the median values of the SMSF balances start to fall around the age of 75, whereas the APRA only account balances start to fall from the age of 65. For accounts with medium and higher balances, there are far more account holders switching from APRA to SMSF accounts than from SMSF to APRA accounts. For accounts with high and very high balances, the rate for switching from APRA to SMSF accounts is three to four times of the rate for switching from SMSF to APRA accounts. The age cohort of 45 to 65 are most likely to switch. The shape and spread of the age distributions for people switching are very similar for switches from APRA to SMSF and from SMSF to APRA. On investment performances of the SMSF and APRA accounts, the median returns of APRA accounts have a higher volatility as compared with SMSF accounts. Both SMSF and APRA accounts experienced large negative returns between 2007 and The contribution rate as a percentage of the account balance for SMSF members is consistently lower than for APRA members. This is attributable to the smaller balances of APRA accounts leading to a higher contribution rate for APRA accounts for the same contribution amount. SMSF account holders contribute a significantly larger annual amount in dollar terms to their accounts than APRA account holders during the important ages of 50 to 65 years. 24

29 For SMSF account holders, their annual contribution amount is doubled from the age of 50 to the age of 62, whereas the annual contribution to APRA accounts stays the same from the age of 50 to 62. From the age of 62 to 65, both SMSF and APRA account holders progressively make less annual contribution in dollar terms before the retirement age of 65. At 70 and 71 years old respectively, APRA and SMSF account holders cease their contribution. The ATO dataset shows that the majority of the SMSF members withdraw at or near the minimum withdrawal rates as regulated by the government for APRA and SMSF account holders. In 2011, when the regulated minimum withdrawal rates were lowered, SMSF account holders did not reduce their withdrawal rates accordingly, which can be interpreted as SMSF account holders preferring to maintain a certain standard of living even when it is possible to withdraw less. The withdrawal pattern supports the finding that the majority of SMSF account holders maintain their SMSF as a pension account but withdraw at or more than the regulated minimum rates there is no evidence to suggest SMSF account holders withdrawing lump sums, and thus depleting their SMSF balances early in retirement. For this paper, the median values are used mainly to generate the analysis results, for the given dataset it is also possible to use distributions of the proxy returns and/or contributions and/or withdrawals to obtain further insights. Analysis data generated in the report is tabulated and provided in the appendix of this report. Acknowledgement We wish to thank Dr Matt Power of the Australian Taxation Office (ATO) for his efforts and help in scoping the data requirement and identifying potential issues in analysing the dataset throughout this study by the CSIRO Monash Superannuation Research Cluster. Without his involvement, this research would have been not possible. Additionally, we would like to thank the ATO for agreeing to provide the required data to the CSIRO Monash Superannuation Research Cluster. Reference Reserve Bank of Australia: Financial Stability Review, March

30 Appendix A: ATO data by age and year Age/Year

31

32 Appendix B: Selected data tables Table 1: Percentiles of balances distribution Type 25% 50% 75% SMSF APRA Table 2: Percentiles of balances distribution (SMSF only) split by age Age 25% 50% 75%

33 E

34 Table 3: Percentiles of balances distribution (APRA only) by age Age 25% 50% 75% E

35 Table 4: Percentiles of balances distribution (SMSF as part of having both accounts) by age Age 25% 50% 75%

36

37 E E+06 33

38 1 Table 5: percentiles of balances distribution (APRA as part of having both accounts) by age Age 25% 50% 75% E

39 Table 6: Percentiles of balances distribution (SMSF only) split by age in income year 2005 Age range 25% 50% 75% (15 18] (18 21] (21 24] (24 27] (27 30] (30 33] (33 36] (36 39]

40 (39 42] (42 45] (45 48] (48 51] (51 54] (54 57] E+05 (57 60] (60 63] (63 66] (66 69] (69 72] (72 75] (75 78] (78 81] (81 84] (84 87] Table 7: Percentiles of balances distribution (SMSF only) split by age in income year 2006 Age range 25% 50% 75% (18 21] (21 24] (24 27] (27 30] (30 33] (33 36] (36 39] (39 42] (42 45] (45 48] (48 51] (51 54] (54 57] (57 60] (60 63] (63 66] (66 69] (69 72] (72 75] (75 78] (78 81] (81 84] (84 87] Table 8: Percentiles of balances distribution (SMSF only) split by age in income year 2007 Age range 25% 50% 75% 36

41 (18 21] (21 24] (24 27] (27 30] (30 33] (33 36] (36 39] (39 42] (42 45] (45 48] (48 51] (51 54] (54 57] (57 60] (60 63] (63 66] (66 69] (69 72] (72 75] (75 78] (78 81] (81 84] (84 87] (87 90] Table 9: Percentiles of balances distribution (SMSF only) split by age in income year 2008 Age range 25% 50% 75% (18 21] (21 24] (24 27] (27 30] (30 33] (33 36] (36 39] (39 42] (42 45] (45 48] (48 51] (51 54] (54 57] (57 60] (60 63] (63 66] (66 69] (69 72] (72 75]

42 (75 78] (78 81] (81 84] (84 87] (87 90] Table 10: Percentiles of balances distribution (SMSF only) split by age in income year 2009 Age range 25% 50% 75% (21 24] (24 27] (27 30] (30 33] (33 36] (36 39] (39 42] (42 45] (45 48] (48 51] (51 54] (54 57] (57 60] (60 63] (63 66] (66 69] (69 72] (72 75] (75 78] (78 81] (81 84] (84 87] (87 90] Table 11: Percentiles of balances distribution (SMSF only) split by age in income year 2010 Age range 25% 50% 75% (21 24] (24 27] (27 30] (30 33] (33 36] (36 39] (39 42] (42 45] (45 48] 1.00E (48 51] (51 54]

43 (54 57] (57 60] (60 63] (63 66] (66 69] (69 72] (72 75] (75 78] (78 81] (81 84] (84 87] (87 90] (90 93] Table 12: Percentiles of balances distribution (SMSF only) split by age in income year 2011 Age range 25% 50% 75% (21 24] (24 27] (27 30] (30 33] (33 36] (36 39] (39 42] (42 45] (45 48] (48 51] (51 54] (54 57] (57 60] (60 63] 3.00E (63 66] (66 69] (69 72] (72 75] (75 78] E (78 81] (81 84] (84 87] (87 90] (90 93] Table 13: Percentiles of balances distribution (SMSF only) split by age in income year 2012 Age range 25% 50% 75% (24 27] (27 30]

44 (30 33] (33 36] (36 39] (39 42] (42 45] (45 48] (48 51] (51 54] (54 57] (57 60] (60 63] (63 66] (66 69] (69 72] (72 75] (75 78] (78 81] (81 84] (84 87] (87 90] (90 93] Table 14: Percentiles of balances distribution (SMSF only) split by age in income year 2013 Age range 25% 50% 75% (24 27] (27 30] (30 33] (33 36] (36 39] (39 42] (42 45] (45 48] (48 51] (51 54] (54 57] (57 60] (60 63] (63 66] (66 69] (69 72] (72 75] (75 78] (78 81] (81 84] (84 87] (87 90]

45 (90 93] Table 15: Percentiles of balances distribution (SMSF only) split by age in income year 2014 Age range 25% 50% 75% (24 27] (27 30] (30 33] (33 36] (36 39] (39 42] (42 45] (45 48] (48 51] (51 54] (54 57] (57 60] (60 63] (63 66] (66 69] (69 72] (72 75] (75 78] (78 81] (81 84] (84 87] (87 90] (90 93] Table 16: Percentiles of balances distribution (APRA only) split by age in income year 2005 Age range 25% 50% 75% (15 18] (18 21] (21 24] (24 27] (27 30] (30 33] (33 36] (36 39] (39 42] (42 45] (45 48] (48 51] (51 54] (54 57] (57 60]

46 (60 63] (63 66] (66 69] (69 72] (72 75] (75 78] (78 81] (81 84] Table 17: Percentiles of balances distribution (APRA only) split by age in income year 2006 Age range 25% 50% 75% (15 18] (18 21] (21 24] (24 27] (27 30] (30 33] (33 36] (36 39] (39 42] (42 45] (45 48] (48 51] (51 54] (54 57] (57 60] (60 63] (63 66] (66 69] (69 72] (72 75] (75 78] (78 81] (81 84] (84 87] Table 18: Percentiles of balances distribution (APRA only) split by age in income year 2007 Age range 25% 50% 75% (15 18] (18 21] (21 24] (24 27] (27 30] (30 33] (33 36]

47 (36 39] (39 42] (42 45] (45 48] (48 51] E+05 (51 54] (54 57] (57 60] (60 63] (63 66] (66 69] (69 72] (72 75] (75 78] (78 81] (81 84] (84 87] Table 19: Percentiles of balances distribution (APRA only) split by age in income year 2008 Age range 25% 50% 75% (15 18] (18 21] (21 24] (24 27] (27 30] (30 33] (33 36] (36 39] (39 42] (42 45] (45 48] (48 51] E+05 (51 54] (54 57] (57 60] (60 63] (63 66] (66 69] (69 72] (72 75] (75 78] (78 81] (81 84] (84 87] (87 90]

48 Table 20: Percentiles of balances distribution (APRA only) split by age in income year 2009 Age range 25% 50% 75% (18 21] (21 24] (24 27] (27 30] (30 33] (33 36] (36 39] (39 42] (42 45] (45 48] (48 51] (51 54] (54 57] (57 60] (60 63] (63 66] (66 69] (69 72] (72 75] (75 78] (78 81] (81 84] (84 87] (87 90] Table 21: Percentiles of balances distribution (APRA only) split by age in income year 2010 Age range 25% 50% 75% (18 21] (21 24] (24 27] (27 30] (30 33] (33 36] (36 39] (39 42] (42 45] (45 48] (48 51] (51 54] (54 57] (57 60] (60 63] (63 66] (66 69]

49 (69 72] (72 75] (75 78] (78 81] (81 84] (84 87] (87 90] Table 22: Percentiles of balances distribution (APRA only) split by age in income year 2011 Age group 25% 50% 75% (18 21] (21 24] (24 27] (27 30] (30 33] (33 36] (36 39] (39 42] (42 45] (45 48] (48 51] (51 54] (54 57] (57 60] (60 63] (63 66] (66 69] (69 72] E+05 (72 75] (75 78] (78 81] (81 84] (84 87] Table 23: Percentiles of balances distribution (APRA only) split by age in income year 2012 Age group 25% 50% 75% (21 24] (24 27] (27 30] (30 33] (33 36] (36 39] (39 42] (42 45] (45 48]

50 (48 51] (51 54] (54 57] (57 60] (60 63] (63 66] (66 69] (69 72] (72 75] (75 78] (78 81] (81 84] (84 87] (87 90] Table 24: Percentiles of balances distribution (APRA only) split by age in income year 2013 Age group 25% 50% 75% (21 24] (24 27] (27 30] (30 33] (33 36] (36 39] (39 42] (42 45] (45 48] (48 51] (51 54] (54 57] (57 60] (60 63] (63 66] (66 69] (69 72] (72 75] (75 78] (78 81] (81 84] (84 87] (87 90] Table 25: Percentiles of balances distribution (APRA only) split by age in income year 2014 Age group 25% 50% 75% (21 24] (24 27]

51 (27 30] (30 33] (33 36] (36 39] (39 42] (42 45] (45 48] (48 51] (51 54] (54 57] (57 60] (60 63] (63 66] (66 69] (69 72] (72 75] (75 78] (78 81] (81 84] (84 87] (87 90]

52 Table 26: Percentiles of Log Return Distribution for SMSF and APRA by age: All SMSF All APRA Age 25% 50% 75% 25% 50% 75%

53 Table 27: Percentiles of Return Rate % Distribution for SMSF and APRA by age All SMSF All APRA Age 25% 50% 75% 25% 50% 75%

54 Table 28: Percentiles of Return Rate % for year olds (SMSF and APRA) by income year All SMSF All APRA Year 25% 50% 75% 25% 50% 75% Table 29: Percentiles of Return Rate % for year olds (SMSF only and APRA only) by income year SMSF only APRA only Year 25% 50% 75% 25% 50% 75% Table 30: Percentiles of Contribution Rate Distribution (SMSF and APRA) by age SMSF APRA Age 25% 50% 75% 25% 50% 75%

55 Table 31: Percentiles of Contribution Dollar Amount Distribution (SMSF and APRA) by age SMSF APRA Age 25% 50% 75% 25% 50% 75%

56 Table 32: Percentiles of Contribution Dollar Amount Distribution (SMSF and APRA) for 50 year olds by income year Year SMSF APRA 25% 50% 75% 25% 50% 75% Table 33: Percentiles of Contribution Dollar Amount Distribution (SMSF and APRA) for 60 year olds by income year Year SMSF APRA 25% 50% 75% 25% 50% 75%

57 Table 34: Percentiles of Contribution Rate Distribution (SMSF and APRA) by age for income year 2004 SMSF APRA Age 25% 50% 75% 25% 50% 75% Table 35: Percentiles of Contribution Rate Distribution (SMSF and APRA) by age for income year 2005 SMSF APRA Age 25% 50% 75% 25% 50% 75%

58 Table 36: Percentiles of Contribution Rate Distribution (SMSF and APRA) by age for income year 2006 SMSF APRA Age 25% 50% 75% 25% 50% 75%

59 Table 37: Percentiles of Contribution Rate Distribution (SMSF and APRA) by age for income year 2007 SMSF APRA Age 25% 50% 75% 25% 50% 75%

60 Table 38: Percentiles of Contribution Rate Distribution (SMSF and APRA) by age for income year 2008 SMSF APRA Age 25% 50% 75% 25% 50% 75% Table 39: Percentiles of Contribution Rate Distribution (SMSF and APRA) by age for income year 2009 SMSF APRA Age 25% 50% 75% 25% 50% 75%

61 Table 40: Percentiles of Contribution Rate Distribution (SMSF and APRA) by age for income year 2010 SMSF APRA Age 25% 50% 75% 25% 50% 75%

62 Table 41: Percentiles of Contribution Rate Distribution (SMSF and APRA) by age for income year 2011 SMSF APRA Age 25% 50% 75% 25% 50% 75%

63 Table 42: Percentiles of Contribution Rate Distribution (SMSF and APRA) by age for income year 2012 SMSF APRA Age 25% 50% 75% 25% 50% 75% Table 43: Percentiles of Contribution Rate Distribution (SMSF and APRA) by age for income year

64 SMSF APRA Age 25% 50% 75% 25% 50% 75% Table 44: Percentiles of Contribution Rate Distribution (SMSF and APRA) by age for income year 2014 SMSF APRA Age 25% 50% 75% 25% 50% 75%

65 Table 45: Percentiles of SMSF withdrawal rate distribution by age for income year 2008 Age 25% 50% 75%

66 Table 46: Percentiles of SMSF withdrawal rate distribution by age for income year 2009 Age 25% 50% 75% Table 47: Percentiles of SMSF withdrawal rate distribution by age for income year 2010 Age 25% 50% 75%

67 Table 48: Percentiles of SMSF withdrawal rate distribution by age for income year 2011 Age 25% 50% 75%

68 Table 49: Percentiles of SMSF withdrawal rate distribution by age for income year 2012 Age 25% 50% 75% Table 50: Percentiles of SMSF withdrawal rate distribution by age for income year 2013 Age 25% 50% 75%

69 Table 51: Percentiles of SMSF withdrawal rate distribution by age for income year 2014 Age 25% 50% 75%

70 Table 52: Percentiles of SMSF withdrawal rate distribution for very low balances (<$220K) by age Age 25% 50% 75% Table 53: Percentiles of SMSF withdrawal rate distribution for low balances ($220K $481K) by age Age 25% 50% 75%

71 Table 54: Percentiles of SMSF withdrawal rate distribution for medium balances ($481K $851K) by age Age 25% 50% 75%

72 Table 55: Percentiles of SMSF withdrawal rate distribution for high balances ($851K $1585K) by age Age 25% 50% 75%

73 Table 56: Percentiles of SMSF withdrawal rate distribution for very high balances (>$1585K) by age Age 25% 50% 75%

74 IN THIS PAPER, WE HAVE PRESENTED AN ANALYSIS OF THE ATO DATA ON SMSF AND APRA ACCOUNT BALANCES. THE ANALYSIS IS EXCLUSIVELY ON PRESENTING MEDIAN VALUES FOR THE RANDOMLY SAMPLED MEMBERS WITH APRA AND SMSF ACCOUNTS. THE INTERESTING FINDING OF THE ANALYSIS IS THAT WHEN FOR TOTAL PERFORMANCES ON INVESTMENT RETURNS MINUS WITHDRAWALS, THE MEDIAN RETURNS OF APRA ACCOUNTS HAVE A HIGHER VOLATILITY AS COMPARED WITH SMSF 70