The Australian Prudential Regulation Authority (APRA) released its Quarterly Superannuation Performance report on 22 August 2013. The report, which can be found here, reports the total invested in Australian Superannuation assets now totals $1.62 trillion. As of June 2013, APRA reported that self-managed superannuation funds accounted for largest proportion of total superannuation assets (31.3%), followed by retail funds (26.1%). Industry funds accounted for 20.0% of total assets and public sector funds 15.9%. The largest pool of retirement assets in Australia clearly rests with those who want the greatest control over their retirement planning and investment decisions.
What type of people choose a SMSF?
People that choose a self-managed super fund often have a strong conviction or wish to be closely involved with their plan to grow wealth. They are typically focused investors who know that whilst their superannuation funds cannot be accessed now, superannuation is a tax effective vehicle for building wealth over the long term which is available when they retire. SMSF investors have the ability to invest their superannuation monies alongside those of their partner and other family members within the same fund.
All members of an SMSF are required to be trustees of the fund (or if a corporate trustee is used, they are required to be directors of the trustee company). They must comply with the superannuation legislation, rules and regulations overseen by the Australian Tax Office. A maximum of four members can belong to an SMSF at any one time. Under law, the trustees are jointly responsible for the fund’s investment strategy, investment decisions, administration, compliance, auditing and reporting.
SMSF trustees do not have to undertake this work alone. They often involve professionals to help with the investment strategy and making investment decisions, undertaking compliance and reporting functions, establishing pension streams, estate planning, navigating the changing SMSF regulatory environment and importantly, using the particular features of an SMSF to strategically plan for future retirement. The responsibilities of trustees can be complex and although seeking professional help does not devolve the responsibility from the trustees, it can greatly reduce the time taken to undertake those responsibilities, reduce the risk of a compliance breach or poor decision making and increase the functionality of the SMSF to meeting retirement goals.
Trustees can expect to pay upwards of $2,000 per year to administer their fund in a compliant way. Retail or industry funds, on the other hand, can charge less than 1% of member’s funds in fees. With this in mind, costs of running a small SMSF can be higher than the alternatives, although there may still be a good reason for you to want to do so as there are many benefits of self-managed super funds. Flexibility and control of asset strategy and selection may still justify the higher costs in a small fund. Although not a hard and fast rule, an SMSF with more than around $200,000 in total member funds may be more cost-effective than the alternatives, but again this can vary depending on the level of services (and therefore cost) required to run the fund.
For the retirement focussed investor, Self-Managed Superannuation Funds can be an effective way to control their retirement wealth, as well as perhaps that of other family members. By combining super account balances a broader range of direct investment opportunities might emerge that would not be accessible if the super funds were managed separately. SMSFs are also able to accommodate different member’s life stages concurrently, paying pensions for some members whilst maintaining accumulation accounts for those members not yet eligible to meet a condition of release.
The ability to make decisions as fund trustees gives full flexibility to the family around estate planning, timing of asset purchases and sales, and of course the right asset selection and mix. To properly assess the appropriateness of whether an SMSF is right for you, contact us or try our 30-second quiz.
Damien Quirk is a financial advisor at Blueprint Wealth.
Blueprint Planning Pty Ltd (ABN 78 097 264 554) trading as Blueprint Wealth and Damien Quirk are Authorised Representatives of AMP Financial Planning Pty Limited
Disclaimer: This article contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.