Is a self-managed super fund right for you?
For those looking for greater control over their finances, self-managed super funds (SMSF) could be a great way to go. But, are they right for everyone?
Greater control, flexibility and potentially lower costs are just some of the reasons why many Australians have decided to go down the SMSF path. But, what some people don’t realise is that managing your own super fund can be time consuming and stressful, particularly for those who don’t have experience in financial or legal work.
However, if you’re willing to give it a go, then this is what you need to know.
The ins and outs of a SMSF
The major difference between SMSFs and other super funds is the level of control people have, which includes the added responsibility and workload associated with managing your own fund. You are also personally liable for all the decisions made by the fund, even if you ask a professional for help.
It can also be costly. You want to make sure you have enough in your super fund to come out ahead of set up costs and ongoing expenses, including professional accounting, tax, and legal and financial advice.
David Calvert, managing director of superannuation at financial services firm Dixon Advisory, says SMSFs tend to be more cost-effective for people, or couples, with a reasonable balance, usually above $300,000 if they’re still earning and contributing to super or about $500,000 if retired.
In terms of cost, he said this can vary depending on your provider, so you need to be clear on the level of support you require and what you get for the fee your provider charges.
“For example, at one end of the spectrum you can get a no frills offer which has minimal cost but you receive no support and have to do the heavy lifting yourself or you must pay for everything you request help on. At the top end, a SMSF partner will organise all the paperwork, filing etc and even contact and follow up existing providers for you.”
He suggests that if you’re looking for support, be focused on value. Look at the capability of the provider and what you get in return for the money you pay.
Being able to choose where to invest your retirement savings, including in direct property, and the potential for better performance compared with retail or industry funds has increased the popularity of SMSFs.
“If you value benefits such as control, in our case having capped fees versus other types of fund where you pay a percentage of your balance, expertise of investment committee making investment recommendations, full accounting and admin support, and all these things working together for you, then setting up a supported model SMSF is a good choice,” Mr Calvert explains.
So how do SMSFs work?
To set up your own super fund and manage it you’ll need to adhere to strict rules set out by the Australian Taxation Office (ATO). A SMSF can have between one to four members, who are each called trustees and are responsible for all legal duties.
The money must only be used to provide for retirement benefits and follow an investment strategy that ensures the fund will likely meet your retirement needs. Comprehensive records need to be kept and an audit by an approved SMSF auditor must be undertaken annually.
For help with either the administration or investment elements of the fund, an adviser can be paid to undertake these duties for you but you’ll not be able to pass on the responsibility of being a trustee or director.
Is it right for you?
Setting up a SMSF is not something to be done lightly, so understand your own appetite for the ongoing maintenance required for your fund.
Embarking on your SMSF journey can be intimidating but there are a variety of resources available to help. The Association of Superannuation Funds of Australia’s online resource, Super Guru, is a good point of reference that spells everything out clearly and plainly while the ATO and the Australian Securities and Investments Commission have developed a comprehensive guide for those interested in going down this path.
At the end of the day, remember to research, research, research and then, research some more, before jumping into a SMSF. Super is one of the most important investments you’ll ever make so take your time in finding what’s right for you.
Related link: One million Aussies choose self-managed super