The growth of savings outside super

NewsSMSF Insights

The growth of savings outside super

Written by Robin Bowerman, Head of Corporate Affairs at Vanguard Australia/Board Director of the SMSF Association

Are you among the investors holding a growing proportion of your investments outside super?

Changes to the super system – particularly the lowering of contribution caps and the introduction of the $1.6 million pension transfer cap* – are inevitably focusing more of investor’s attention on non-super assets.

Shortly before the arrival of the pension transfer cap in July 2017, the total value of non-super personal investments had overtaken the total value of super assets.

The Personal Investments Market Projections 2017 report, published earlier this year by consultants Rice Warner, calculates that the value of non-super personal investments overtook super assets during 2016-17.

Rice Warner expects personal non-super investments to become more important to higher-income super fund members still making contributions together with members, including retirees, who have already accumulated large super balances.

Further, the Vanguard/Investment Trends 2018 SMSF Report found that a third of SMSF trustees are making, or intending to make, investments outside super.

Yet regardless of wealth, a high proportion of investors have, of course, both super and non-super savings.

It is critical for investors to co-ordinate their super and non-super investment portfolios. This includes for their retirement and investment strategies, strategic asset allocations, periodic rebalancing of portfolios, tax planning, estate planning and their day-to-day finances.

When assessing the adequacy of your retirement savings, all of your investments, inside and outside super, should be included in your calculations.

Exchange traded funds (ETFs) are likely to receive an increasing share of the savings that would have otherwise flowed into super. This is because of their low cost, ease of trading and ability to immediately create widely-diversified portfolios. (See Releasing the power of diversification through ETFsSmart Investing, June 6, 2018.)

By contrast, low interest rates continue to discourage many investors from holding more of their non-super money in term deposits and cash.

A key difference between super and non-super investments is obviously tax treatment. Investors with more of their assets outside concessionally-taxed super have an added motivation to make their portfolios as tax efficient as possible.

*The indexed $1.6 million pension transfer cap is the maximum transferrable from an accumulation to a pension super account from July 1, 2017. Also, members with total super balances (in accumulation and pension accounts) greater or equal to the transfer cap can no longer make non-concessional (after-tax) contributions without exceeding the contributions cap.


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