The latest tax office figures on self-managed funds shows that 3964 new funds were established during the March quarter. That is the lowest number of quarterly SMSF establishments that the ATO has reported since it started producing the data series.
The ATO’s report revives questions, which have been aired quite a bit recently, about whether the demand for SMSFs has peaked, and whether the growing complexities and increasing regulatory restraints will lead to an exodus from the sector.
Recent Australian Prudential Regulation Authority figures show that assets in SMSFs fell 0.2 per cent to $726.5 billion over the 12 months to the end of December. The value of assets in APRA-regulated funds grew 2.2 per cent to $1.7 trillion over the same period.
Commentators have pointed to tighter regulation of advisers, studies that show small SMSFs are expensive to run and concerns about proposed tax changes, particularly Labor’s franking credits policy, as reasons for the slowdown.
Last year’s Productivity Commission report raised questions about the appropriate minimum asset size for the establishment of an SMSF and suggested that an adviser recommending that a client start an SMSF with less than $500,000 should be able to provide good reasons for making that recommendation.
The Australian Securities and Investments Commission has expressed concern about the quality of advice SMSF trustees are getting and the influence of one-stop property shops.
In December, self-managed superannuation fund administrator SuperConcepts published the results of a survey of more than 600 of its SMSF trustee clients. It found that in response to a change in the franking policy 14.5 per cent would consider shutting their funds.
The chief executive of the Australian Institute of Superannuation Trustees, Eva Scheerlinck, told delegates that the SMSF Association annual conference earlier this year that her organisation was getting more inquiries from people who wanted to move their assets from an SMSF to an APRA fund.
Actuarial consultant Michael Rice says some decline in SMSFs is inevitable, as the members who have well in excess of $1.6 million age and start to run down their accounts.
Commentators say another issue the sector has to face is what happens to trustees who suffer from cognitive decline. There are issues of intergenerational transfer that will emerge in the SMSF sector.
Rice says: “Once one partner dies and one old person is left in charge, then there is a question about whether that person should be running their own money.”
If Labor is elected, in addition to changing the franking rules it will ban the use of limited recourse borrowing arrangements.