Are SMSFs in decline?

Alex Burke,  Senior Writer,  No More Practice Education

The most recent data from the Australian Taxation Office suggests that the rate of SMSF establishments is steadily cooling.

Specifically, there were 3,964 SMSFs established between December 2018 and March 2019, down from 4,762 the previous quarter and 6,166 the quarter before that. On an annual basis, net establishments - that is, establishments minus wind-ups - in the year to June 2018 hit 5,027, which is a significant decline from the 17,047 recorded in the 12 months prior.

The rate of wind-ups has steadily increased over the past few years - while the number hovered around 13,000 per year between 2014 and 2017, it reached 20,430 in the following year.

How is the landscape changing?

Looking deeper into recent statistics paints an interesting picture about the SMSF sector. Those SMSFs established in the 2016-17 financial year had average assets of $521,000, which the ATO noted was an increase of 38% on 2015-16 ($379,000).

This suggests that even if net establishments are declining, when SMSFs are established their trustees tend to have more investable assets than before.

What does this suggest?

There are likely multiple reasons why the SMSF landscape is changing. The spike in wind-ups may be attributable to generational changes, with a larger group of trustees entering retirement.

There are also increasing concerns about the costs involved in running SMSFs, especially now that Australia's biggest financial institutions are ceasing lending to the sector.

And finally, there are the different proposals as to how the sector will be treated in light of a potential change in Government, which we'll be discussing next week.

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