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Monday, June 16, 2014

Should you be managing your own super?

We recently held an education session on Self Managed Superannuation Funds (SMSF).  The feedback was terrific, and whilst I can't fit two hours worth of information into one blog, I can share a few of the salient points, and also extend an offer that we made on the night - not something we do very often.

A SMSF is quite simply a super fund that is set up by people who want to control their own retirement savings, and has less than 5 members.

What you find is that your standard super funds can be quite limiting in the types of investments that you can choose from.  So for people with reasonably high super balances that can be a real disadvantage, and you find that often those people will prefer the flexibility of a much greater range of investment opportunities, and having complete control over investment decisions.

The Australian Securities and Investment Commission will tell you that you probably need $200,000 - $250,000 to make it worthwhile, and that's because you need to justify the compliance or accounting costs that are involved.

It's important to point out that you still pay accounting and compliance costs in a retail or industry super fund, the difference is that they are often percentage based or a combination of fixed and percentage.  This means that people with small balances don't pay a lot for the accounting, but people with higher balances are actually often subsiding the costs for other people.

From the research we've done over the past few years, we'd agree that at $200-$250K it's definitely worth considering, especially if you're going to be making contributions for a while, but it becomes particularly cost effective for balances of $400,000 plus.  In many circumstances it will be a cheaper option than retail or industry super!

Oh and that doesn't mean $400,000 per member, but combined... Just bear in mind that members of a super fund must be family or in business together.

Perhaps the greatest SMSF misconception is that it is a lot of work for the members, but for the SMSF owner it doesn't need to be any more difficult than being in a standard super fund.  Make your Accountant and Financial Planner (ideally under one roof) do all the hard work!

Our accounting team has a specialisation in this area and we manage about 120 SMSFs and I can tell you right now that very few members want to have involvement in the compliance side of things like preparing the accounts and tax returns, updating trust deeds, writing minutes, arranging actuarial certificates...

When it comes to the rules, well they're pretty much the same as for any standard super fund - the difference is that you (and your Accountant) are responsible for making sure the fund meets it's obligations.

One rule that's changed relates to borrowing within a SMSF.  Previously no SMSF was permitted to borrow, but now you can - within some pretty tight rules.  If you're considering taking advantage of this opportunity you should definitely get advice.

And finally, within your SMSF you can invest in pretty much anything that constitutes a legitimate investment - shares, property, managed funds, artwork, coin collection, wine collection - as long as it meets all the legal guidelines of the "sole purpose" test which means it MUST be solely invested for your retirement.

Ok, so that's the "bare bones" summary.  At our education session we offered everyone who attended a free 45 minute session to chat about whether or not a SMSF would be worth considering.  We don't usually extend these offers to people who didn't attend, but in this case we're making an exception.  Do-it-yourself super is an area that's growing and growing fast (there's currently more than 500,000 funds in Australia!!) so we want to make sure you have all the facts to make an informed decision as to whether it might be a worthwhile strategy for your long-term financial security.

Click here for a copy of the offer - it expires June 30.

And if you'd like to hear more of what I have to say on the matter, click here for a recording of my most recent "You & Your Money" radio segment on 98.1FM Radio Eastern.

Talk soon,

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