Given the attention on the size of Australia’s super savings, it may surprise you that personal investors in total have almost as much outside super as inside super.
The latest Personal Investments Market Projections report, recently published by consultants Rice Warner, calculates that the total value of super* and non-super personal investments was $5.5 trillion at June 2018. Non-super investments make up almost half or $2.7 trillion of this total.
It may also surprise some readers to know that it is estimated there are roughly the same number of family trusts (holding non super investments) as there are self-managed superfunds in Australia.
While superannuation remains the most tax-advantaged investment vehicle for saving for retirement, there is no doubt that the continuous changes to the superannuation regime by successive governments is causing concern and encouraging people to consider other options outside super. In particular, personal non-super investments are becoming more important to wealthier, higher-income investors with the introduction two years ago of the superannuation pension cap and tighter contribution limits.
Taking a whole-of-portfolio approach
Depending upon their circumstances, it can be critical for investors to co-ordinate their super and non-super investment portfolios. This includes for their retirement and investment strategies, strategic asset allocations for portfolios, periodic rebalancing of portfolios, tax planning and estate planning.
And when assessing the adequacy of your retirement savings, consider taking account of all of your investments, inside and outside super, in your calculations.
Defining a non-super personal investment
Rice Warner defines the personal non-super investments market broadly, including all investments outside super held by individuals – directly or through trusts and companies. Family homes and personal possessions are not counted.
Directly-held property together with directly-held cash and term deposits make up a huge slice of non-super personal investments in dollar terms.
While the value of direct property (excluding mortgages) accounts for 42 per cent of the assets, directly-held cash and term deposits account for more than 41 per cent. By contrast, direct shares make up 8 per cent of personal non-super investments.
Many investors, of course, choose to hold geared and non-geared direct property in their own names – often dominating their non-super portfolios – while having more widely-diversified super portfolios.
Looking ahead
The report’s expectations for the short-to-medium term for the non-super personal investment market include:
- Direct property will remain a major personal investment, driven mainly by low interest rates and its tax treatment. However, the growth in the popularity of direct property investments is “likely to be constrained” over the short-to-medium term because of less investment from overseas and tighter lending standards.
- Personal non-super investments are becoming more important to wealthier, higher-income investors with the introduction two years ago of the superannuation pension cap and tighter contribution limits.
- Demand for share investments through investment platforms will increase as investors pursue higher returns in a low-interest environment.
- Low interest rates will further encourage investors to reduce their fixed-interest investments and seek higher returns in other asset classes.
- Pressure will continue for lower investment management fees.
Over the next 15 years, Rice Warner projects that our personal non-super investments will grow in value to $4.8 trillion in 2018 dollars against $5 trillion for the superannuation sector.
So with personal non-super investments becoming more important to wealthier, higher-income investors (with the introduction two years ago of the superannuation pension cap and tighter contribution limits), are you taking both into account when setting the most-appropriate wealth management strategy, tax structures, asset allocations and assessing the adequacy of your retirement savings?
*Super calculations include unfunded public-sector liabilities and government pensions.
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