Taking control – is a self-managed super fund right for you?

By David Baruffi, Director, Blueprint Wealth

Article originally published in The West Australian ‘Securing Your Future’ special insert on 24/08/2015

Outside the family home, our superannuation is likely to be one of the greatest financial investments we have. We all aim to have a high-quality of life in retirement, which is seeing more Australians turn their focus to their superannuation and how they can make it work better for them.

This, in part, has seen the continued growth of self-managed super funds (SMSF) in Australia over recent years – there are now more than one million Australians who are a member of an SMSF, representing close to $600 billion in retirement savings.

While an SMSF is an attractive option for people who want to take more control of their superannuation, for every ten enquiries we receive for establishing a Self-Managed Super Fund (SMSF), close to half don’t proceed. For example, an SMSF might not be appropriate for their current stage of life.

Furthermore, the recommended combined minimum balance of $200,000 to start an SMSF may also be out of reach for some who are in the earlier years of their working lives. You can have up to four people as members of one SMSF, which means each person would need to contribute $50,000 equally.

The best first step if you’re considering an SMSF is to discuss your goals and objectives with a financial adviser and learn more about what’s required to run an SMSF.

We know the traditional reasons for opening an SMSF have been the desire to control the investments, reduce the costs and take advantage of intergenerational wealth transfer.

In years gone by, old rules better allowed for assets to remain in the fund and be used for future generations of members. Under current legislation the death of a member triggers the payout of funds to a beneficiary. Where benefits are paid to a dependant who is a member of the same SMSF, this can be a useful strategy but it’s important to note the definition of a dependent (for this purpose) is quite narrow – most commonly a member’s spouse. In addition, reserves left in a fund are not treated favourably when passed on to surviving members as they form part of their contribution caps.

For most people, the biggest barrier to running an SMSF is the time required. Not only are you responsible for managing the investments but also keeping the fund compliant with regulation – including annual audits, regular reporting and tax returns. Overall, you will need to be able to dedicate at least one to two hours per week to manage your SMSF.

It’s also important to consider your level of interest in managing investments day-to-day and how you will build your investment strategy. The most popular investments in an SMSF are cash, Australian shares or Australian property. A benefit of SMSFs is that they are the only vehicle you can use to invest in individual direct property so if you wish to buy the factory you are working out of or if you wish to invest in residential real estate, an SMSF is your only superannuation option.

The benefits of running an SMSF can be significant, but there’s much that can be lost if you don’t have the time or support to manage it correctly so it’s best to get the right advice before starting.

Top five points to discuss with a financial adviser before starting an SMSF

1.       Do you have enough time?

2.       Do you have enough money in superannuation to get started?

3.       Who will help you set-up and run your SMSF?

4.       Are you eligible to become an SMSF trustee?

5.       What’s your level of interest in managing investments day-to-day?

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

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 Ltd, Australian Financial Services Licensee and Australian Credit Licensee.

This article contains information that is general in nature and does not take into account your objectives, financial situation or needs. Therefore, before making any decision, you should consider the appropriateness of the advice in regards to those matters.