What’s so super about self managed super?

Welcome to part two of our series on superannuation. In this article we explore self-managed superannuation. Self-managed super funds are now the largest and fastest growing segment of the super industry and are increasingly used in the acquisition of accommodation assets.

If you don’t already have a SMSF it may be something worth considering as part of your retirement planning.

Managing your own super is a big responsibility. There are strict rules that govern how you can use a SMSF, how you can invest the fund’s money and when you can access your super.

You should consider your options and seek professional advice. If you set up a SMSF, you’re in charge – you make the investment decisions for the fund and you are responsible for complying with the law. Deciding which way to go is an important decision and the best approach for you depends on your personal situation. We recommend you see a qualified, licensed professional to help you decide which option is best for you. Licensed financial advisers, tax agents and accountants can help you understand what’s involved and advise on your investment options.

If you decide to set up a SMSF, make sure it’s for the right reason: saving for your retirement. Don’t set up a SMSF to try to get early access to your super or to buy a holiday home or artworks to decorate your house. These things do not comply with super law and schemes to get early access to super are illegal and fraudulent.

If you are not confident that you have the necessary superannuation knowledge and investment skills to manage a SMSF, you may decide that having your own SMSF is not in your best interests.
Make sure you have enough assets, time and skills. You will need enough assets, time and skills to:

  • make investment decisions and formulate an investment strategy that you review regularly.
  • meet all your obligations as a trustee of your fund.

As a trustee of a SMSF, your main responsibility is to ensure you have invested your fund’s money appropriately, so ask yourself:

  • Am I a confident and knowledgeable investor?
  •  Will an SMSF do as well as or better than other super funds after I pay all the costs?

If you’re not confident you can get a better result, you may be better off using other types of funds to provide for your retirement.

What are the costs of setting up and running an SMSF?

To establish a viable SMSF that can be competitive with large funds, it is considered that you may need around $200,000 in super savings. The ongoing costs of running an SMSF may be around $2000 a year, including the annual supervisory levy. If you set up or join a SMSF, you will also need to consider having adequate insurance in case you die or are unable to work because of an illness or accident.

Understand the risks and laws

Think carefully about your investment options and how to manage the associated risks. You need to consider the:

  • age of members
  • level of risk you are comfortable with
  • objectives you have for your fund.

Avoid risking all your retirement savings in one or a few investments. By spreading your investments (diversifying) you can help control the total risk of your investment portfolio.

Super funds, including SMSFs, receive significant tax concessions as an incentive for members to save for their retirement. However, you need to follow the tax and super laws to receive these concessions.

If you decide to set up a SMSF, you’re legally responsible for all the decisions made, even if you get professional advice. All financial decisions carry risk, so it’s important to think carefully about your investment options to balance the level of risk
against the level of financial return. You also need to be sure your super investments are legal.

Managing your fund’s investments

One of your key responsibilities as a trustee is managing your fund’s investments. Your investment decisions should be designed to protect and increase your members’ benefits for retirement. You are required to invest according to your written investment strategy. This sets out your fund’s investment objectives and how you plan to achieve them. It takes into account the personal circumstances of all the fund members, including their age and risk tolerance.

Regularly reviewing your investment strategy will help you maintain the right mix of investments for your fund and its members.

Being a trustee of an SMSF gives you the flexibility to choose the investments for your fund but there are some restrictions on how you invest and what you can invest in. Make your investments on a commercial ‘arm’s length’ basis and do not buy assets from or lend money to fund members (or other related parties).

You need to manage your fund’s investments separately from the personal or business investments of members, including your own. This includes ensuring that the fund has clear ownership of its investment assets. The fund’s investments must be for the sole purpose of providing retirement benefits to members – there cannot be any pre-retirement benefits to members or related parties (such as letting members use an investment asset).

Ultimately a SMSF may be one of a number of strategies you have in place to provide for your retirement. In recent years demand has increased for utilising a SMSF to invest in the accommodation industry assets which often allows a SMSF investor to acquire a share of a very large building that would otherwise be unattainable.

Ensuring you obtain specialist professional advice before establishing a SMSF is vitally important.

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