Know when to get out if the DIY retirement experiment is not for you

By Greg Major*, BA (AsSt) BE (Hons) MBA, GAICD FFIN FAIM, Director, Blueprint Wealth

This article was published in The West Australian’s ‘Securing Your Future’ 24-page essential guide to retirement on Monday, August 25, 2014.

While many people seem to be marching ahead to open a self-managed super fund (SMSF), we have been seeing a lot of people into our practice with an SMSF already in place who really had no idea why they had one.

Born out of a quest for independence, nudged along the way by an obliging accountant or adviser and perpetuated by sheer momentum, the pointless SMSF is more common than you might realise.

We often see an SMSF with either no assets in it at all (the members never got around to rolling over their other funds into their newly minted SMSF), or have only a bank account with cash and no other form of investment. In the first instance, the trustee has probably been left standing at the gate with the freshly printed trust deed in hand but no further instruction on what to do next. Nevertheless, annual compliance and costs would have still been necessary. In the latter case, cheaper options and less administrative options may have been available.

There was a time when if you wanted to invest in shares and be self-directed, an SMSF was a good option for you. This is certainly where many trustees originally sought the flexibility of an SMSF. In more recent times though, it is possible to invest in shares through many retail offered superannuation schemes, meaning that an SMSF is not necessary if that is your only “out of the ordinary” requirement. It may still be cheaper for large balance funds, but in our experience, we still see many small balance funds that have an SMSF because they believe they need one to invest directly into shares.

Despite the variety of investment characteristics that we see and the arguments one might pose about the pros and cons of an SMSF, it is still amazing how many trustees come to us with limited knowledge about their SMSF, including who is the trustee or where the trust deed and investment strategy is. This demonstrates that for a lot of people an SMSF is an unnecessarily complex instrument for the superannuation needs and retirement goals that they have requiring ongoing compliance and administration and in some cases, costs in excess of what might otherwise be achievable.

For as many SMSFs that we advise clients to set up, we are probably advising on around one third as many new clients that come to our door with SMSFs to shut those down and look for a simpler solution, with less administration, less compliance risk and less cost.

Assuming your SMSF accounts are up to date and you are not suffering any unresolved audit issues, shutting down your SMSF need not be a complex exercise if that course of action is right for you, but be sure to seek advice first. Usually the most difficult part is transferring or liquidating the assets in the fund, after which the Australian Taxation Office should be notified, the final accounts can be done, invoices paid and remaining funds rolled over to your new super fund.

After that, you can sleep easy — free of the obligations of an SMSF trustee. SMSF’s may be a suitable option for some clients, but not all; you should always seek advice before implementing this type of strategy to ensure that it is right for you.

Steps to shut down an SMSF

  1. Check with your financial advisor first to make sure it’s a good idea
  2. Check your trust deed on what you are required to do to shut down the fund – be compliant!
  3. Hold your trustee meeting and record the resolution to shut down the fund
  4. Notify the ATO that you shutting down the fund – that’s the law
  5. Notify your administrator – they can help do the leg work
  6. Decide on which fund to join – this is where your cash / assets will go
  7. Settle up all outstanding invoices and tax payments
  8. Either sell your assets for cash or roll them in-specie into the new fund
  9. Complete your final tax return and submit to the ATO
  10. Close down the fund bank and brokerage accounts and you’re done

At Blueprint Wealth we offer financial advice that is right for you, no matter what stage of life you are at. Contact us today to set up a plan that is right for you.

Greg Major is an authorised representative of AMP Financial Planning Pty Limited and a director at Blueprint Wealth. Blueprint Planning Pty Ltd ABN 78 097 264 554 trading as Blueprint Wealth is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited ABN 89 051 208 327 Australian Financial Services Licence 232706 and Australian Credit Licence 232706.

Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.