Is wind-up trend a blip or sign of things to come?
The trend downward of SMSF wind-ups over the past few quarters is one to watch, according to a leading auditor.
Shelley Banton, head of education at ASF Audits, said there seems to be no anecdotal evidence to explain the drop off in SMSF wind-ups which have again dipped significantly in the March 2023 quarter to just over 250.
Ms Banton said in a recent podcast that according to the data from the ATO from February 2023 approximately 15,400 SMSFs wound up in 2020–21, compared to an annual average of 18,100 for the five years to 2020–21.
This week’s data showed it decreased significantly further.
“It will be interesting to see what happens in June, because if there is a drop in the number of lodgements from the previous year there could be a spike,” she said.
“That being said, the wind-ups for June 2022 were significantly lower than the previous year.
“There is certainly something happening, and whether it is purely down to funds not meeting lodgement deadlines or if people are now taking more notice of the performance of APRA funds and understanding that the ability to take charge of your own destiny is more appealing.”
In a research report compiled for the SMSF Association by the International Centre for Financial Services at the University of Adelaide in February 2022, SMSFs with more diversified asset allocations achieve higher returns than APRA funds and that larger SMSFs with net assets in excess of $200,000 that are not concentrated in cash and other fixed income securities outperform APRA funds in two of the three years between 2017 and 2019.
“Perhaps people are realising they don’t have to deal with large a APRA fund where they are just a number, and the forms and hoops they have to jump through especially when they get to pension age, especially if they need money,” Ms Banton said.
“There is more understanding from a trustee point of view in terms of them realising they have much better control over their retirement funds in an SMSF.
“It also reiterates that in Australia we have an SMSF system that has lot of integrity and this is substantiated by the lower number of wind-ups.
“When I looked at the chart for wind-ups recently there was an interesting trend line downward and I am waiting to see what happens in June and seeing if the number of lodgements has increased.”
As of 15 May 2023, around 70 per cent of SMSFs had reported the completion of their audit for the 2022 income year in their annual return to the ATO.
There are also approximately 37,600 SMSF annual returns relating to the 2021 income year and 20,300 relating to the 2020 income year that remain outstanding.
Graeme Colley, executive manager, SMSF technical & private wealth for SuperConcepts said there are probably a number of circumstances that have led to the reduction in the number of fund wind-ups which range from seasonal factors, such as more funds being wound up in the June quarter compared to the March quarter.
“Also, trustees may be holding out at winding up the fund due to notional capital losses for some fund investments that would result in bring forward capital losses,” he said.
“Another reason may be that some investments have done very well over the last few years and ‘when things are good’ people have a tendency to establish SMSFs or maintain the one they have due to good market performance.
“The wind ups would probably include those funds the ATO has wound up due to significant compliance breaches and disqualification of trustees during the year.
“Also, I think we see a maturity in the SMSF area where those who have an SMSF have a very good understanding of how they should operate so there is no reason to abandon ship unless there are significant issues with the fund’s operation.
“If you have a look at the trend there has been a reduction in the number of funds being wound up on a financial year basis.”