The amazing growth in the assets held by self managed superannuation funds in Australia is about stall following changes to the superannuation system made in the federal budget last month.
Hasan S Tevfik, an analyst at Credit Suisse who closely tracks the fortunes of what he calls “selfies”, says the biggest superannuation changes in 10 years during the budget will be to the detriment of self managed super funds.
“The golden age of selfies is now behind us,” Tevfik, Peter Liu and Damien Boey write in a note to clients.
The size of these funds, which control $590 billion in assets, including about 16% of Australian equities, have grown by 15% a year for the last 12 years.
But no more. Credit Suisse is forecasting assets under management growth of just 2% a year to 2020, as this chart shows.
“The selfies are big, but they are barely growing,” the analysts write.
The problem is that the federal government will be taking a bigger share. It has cut concessional pre-tax amount which can be poured into super to $25,000 a year, restricted the total after tax contribution to a lifetime $500,000 and limited the size of pension phase funds to $1.6 million.
All this means fewer concessions, fewer opportunities to put money into self managed funds and more tax paid dollars kept by the government.
No-one knows for certain how big the drop-off in funds flowing to selfies will be but Credit Suisse estimates it to be around $1.5 billion a year.
And Credit Suisse calculates the selfies need to switch $15 billion out of cash into equities just to keep the post-tax yield on their fund constant.
“While a switch of this size is unlikely to happen overnight, it does make it clear which way equity allocations are set to go,” the note to clients says.
“If selfies want to generate enough income to fund their retirement, they will have to take on more risk.”
Credit Suisse sees Adelaide Brighton, AGL Energy, Asaleo Care and Boral as providing dividend yield plus growth.
Here is the Credit Suisse analysis in detail of the impact of the federal government changes to superannuation:
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