SMSFs revealed as standing on multi-billion dollar COVID precipice

Self-managed superannuation fund (SMSF) trustees are standing on the precipice of an impending 16% decline in the value of their assets by the end of the year and up to 60% by 2029, according to data analysis conducted by research house, Dexx&r.

The analysis said the decline would result from combined impacts associated with the COVID-19 pandemic including early release superannuation, depressed equity markets, lower or non-existent dividend returns and lower or zero interest rates.

What is more, Dexx&r principal, Mark Kachor points to the limited ability of SMSF members to replenish their superannuation balances, not least because of the $25,000 concessional contribution caps.

The firm’s analysis said that, in the short term the COVID-19 pandemic was projected to result in a $108 billion fall by December 2020, equating to a 15.7% drop from $690 billion in December 2019 to $582 billion in December 2020.

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“Dividend payments from the most resilient sectors are likely to be suspended in the short term and when reinstated will be at substantially lower levels when compared to those paid over the past ten years,” the report said.

“In addition, there will be significant number of companies that cease trading or dramatically downsize over the coming 24 months,” Kachor said. “Together these two factors will result in a significant fall in the values of equities and dividend flows.”

The Dexx&r research also pointed to SMSFs being hit in both the accumulation and pension phases with total SMSF accumulation funds under management project to be $201 billion lower at $146 billion in December, 2029, compared to the what might have been the case before COVID-19 of $349 billion.

It said that the decrease in accumulation phase balances was attributable to an estimated $1.5 billion being withdrawn as part of the Government’s hardship early release program, the continued movement of accumulation account balances into pension phase and depressed equity values and dividend returns.

Looking at the pension phase, it said FUM was projected to be $346 billion lower in December, 2029 with the decrease in pension phase balances due to depressed investment returns on FUM over at least the next three years including zero or near zero returns on cash.

It said this would combine with a rapid decline in pension account balances as pension drawdowns significantly exceeded income and capital growth in underlying assets and lower pension phase balances being available to participate in the future recovery in equity markets.