Self-Managed Super Funds (SMSFs) account for 30% of the $2.3 trillion superannuation assets in Australia. SMSF numbers have grown by 5% on average each year since 30 June 2017. With a good number of Australians electing to set up SMSFs, this begs the question, is a self-managed super fund right for you? In this article, we explore the pros and cons of going self-managed and raise some issues for you to consider.
How much super is enough to justify the costs of running an SMSF?
According to ASIC, SMSFs with a balance below $200,000 are unlikely to be in the client’s best interest. The establishment and running costs incurred may not be competitive compared with other options in the market. Some compliance costs can be fixed, so the larger the fund the more economical an SMSF structure can be.
Being in charge of your superannuation is appealing to many Australians. SMSFs offer control, transparency, and flexibility. Control over your superannuation decisions and the transparency of knowing where the money is invested. One of the key benefits of an SMSF is the control over your own investments and a wide range of investment choices. When investing through an SMSF you are no longer limited to an investment list of a product provider but have access to the entire investment market.
According to the ATO the top five assets held by SMSFs are:
|Cash & term deposit||25%|
|Non-residential real property||10%|
|Other managed investments||5%|
These investments make up 80% of the assets in SMSFs in 2016.
Every SMSF must have an investment strategy. Trustees of SMSFs are required to consider a number of factors when formulating an investment strategy. The level of risk trustees want to take on, required investment returns, risk protection through insurance for the members, diversification of the fund’s assets, and liquidity requirements to pay future pensions. Ensuring the fund has a suitable investment strategy to see the members through their retirement with a sustainable income stream should be the core objective for the trustees.
There are some disadvantages to consider when operating your own super fund:
- There is a high level of knowledge and expertise required if you plan to administer any part of the fund yourself.
- Set up and operating costs and the cost of a professional audit each year.
- No statutory compensation scheme in the event of fraud or theft.
- No access to the superannuation complaints tribunal.
- Reliance on your own investment skills or experience or engaging and paying for the services of an experienced investment professional.
The questions are then, what expertise do you have in these areas and what help will you need? As a trustee, there are strict laws and regulations you must consider, and you are held responsible for complying with these laws. The ATO offers a comprehensive guide on Running an SMSF (https://www.ato.gov.au/uploadedfiles/content/spr/downloads/spr46427n11032.pdf) that outlines what you need to know.
A financial planner will assist you with strategy; wealth accumulation, maximising super contributions, navigating legislative changes and importantly investing with a long-term outlook for the fund, considering the fund’s sustainability and ability to pay pensions in the future. An accountant can help you with you with taxation, reporting and compliance obligations.
Only a qualified financial planner can give you advice on establishing an SMSF. In the past accountants could help with this recommendation, however, the accountant’s exemption has now ceased. Accountants continue to play a critical role in compliance for the SMSF and navigating the complicated taxation legislation surrounding SMSFs, however, they cannot make any recommendations relating to the set-up, or investments of the SMSF. The first point of call when considering an SMSF is to speak with a financial planner. There are so many options when it comes to superannuation it’s important to consider all the facts to determine what is right for you.
General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.
Aptus Financial Pty Ltd is an Authorised Representative of Count. ‘Count’ and Count Wealth Accountants® are trading names of Count Financial Limited, ABN 19 001 974 625 Australian Financial Services Licence Holder Number 227232 (“Count”) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Count is a Professional Partner of the Financial Planning Association of Australia Limited.
Author: Simone Murad