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SMSF critics ignore the facts, claims accounting firm

by Robin Christie | 19 Aug 2014

Claims from retail and industry super fund representatives that SMSF wind-ups are sounding the death knell for DIY investment growth don't hold up to scrutiny, SuperGuardian, Xpress Super CEO Olivia Long has claimed.

According to Long, whose organisation is a chartered accounting firm and specialist SMSF administrator, figures from the Australian Tax Office (ATO) in fact indicate that SMSFs are increasing in popularity.

She noted that ATO figures for the five years to 30 June 2013 show that, on average, for every five SMSFs established only one was wound up. In gross terms, that equates to 34,800 SMSF establishments and 7,800 wind-ups per year.

Noting that SMSF growth over the five year period in question came to more than 27 per cent, Long stated that "this hardly presented a picture of disillusionment".

Costly and time-consuming

Long's comments come on the back of Care Super CEO Julie Lander stating that running an SMSF can be a costly and time-consuming exercise.

"Lots of people have set up an SMSF thinking that they will relish the control they have over their investments, but they have reported to us that they were not aware of the time associated with compliance requirements and the ongoing costs at the point of establishing the SMSF," she said as CARE Super launched its SMSF wind-up service in partnership with Crowe Horwath.

Lander stated that some of the reasons for SMSF wind-ups include investment performance that doesn't match up to members' expectations, the onerous nature of keeping abreast of compliance requirements and investment markets, members choosing to have experts manage their money or the SMSF being improperly set up or managed.

She added that wind-ups can also occur due to changes in the members' circumstances, due to ill health, death or divorce, or the costs of running an SMSF making it an unviable option in pension mode as assets decrease. 

Valid reasons

Long, however, has taken issue with the way in which industry and retail fund spokespeople comment on SMSF wind-ups.

“It is often implicit in their statements that trustees are quitting their SMSFs because of complexity, time, or because they have been closed down by the ATO," she said. 

Long conceded that some SMSFs are no doubt wound up for these reasons, but added that other "valid reasons" often apply, such as death or ageing of a trustee.

"With more than 55 per cent of SMSF members over the age of 55, this is likely to be the cause of a larger number of natural wind ups," said Long adding that the following two circumstances can often apply to SMSF wind-ups:

  • The taxation benefits of the SMSF are no longer relevant for retirees so they draw out the money and invest personally.
  • Members move overseas, at which point they roll over to an APRA-regulated fund as the easiest option. 

“The reality is there is no hard and fast data on why SMSFs are being wound up. What we do know, conclusively, is that far more are being established than are being closed down, and the vast majority of these new SMSF members are coming from the ranks of the APRA-regulated funds,” said Long.

 

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