Self-managed super funds
Haven or headache?
Before starting your own self-managed super fund (SMSF) it is worth thinking about the time and money you’ll need to invest to manage your own super versus the alternatives such as a professionally managed fund. It may not quite be the super haven you have been looking for, instead, the headache that won’t go away.
Below are some questions to ask yourself before you go it alone; but first let’s explain what an SMSF is:
An SMSF, like all super funds, exists to provide retirement benefits. Like all super funds, the money in an SMSF is generally tied up until you are retired. You can’t access your money until you meet the same conditions of release that you would need to meet in your current super fund. The difference between being an investor in your current fund and having an SMSF, is that you are also an individual trustee or director of a corporate trustee with all the legal responsibilities, liabilities and costs that goes with it.
To help you, we’ve provided some simple explanations around the implications of answering YES to these questions. Simply click on the question to get the facts.
For a self-managed fund to be beneficial, generally, you will need a minimum starting balance of around $200,000* and the expertise to ensure that the fund will continue to grow at a rate faster than your contributions. This starting balance can of course come from an account you already have in a super fund.
*Source: Financial System Inquiry Interim report, Jul 2014
SMSFs are strictly for retirement benefits and must pass the rigor of the sole purpose test. Assets held must be acquired and handled in a commercial and business-like way and can’t be used for personal use. Withdrawing money early is illegal and you may be subject to fines or other penalties. If other family members are members of the SMSF, their requirements (which are often different) need to be taken into consideration as well. On the other hand, an SMSF gives you control over your investment.
An SMSF trustee is required to invest a significant amount of time and have a strong knowledge of the stock market and other forms of investment. As a trustee you are responsible for all decisions and actions of the fund. Although you may rely on a wide range of professionals to help, the compliance responsibility is on you. Dealing with a wide range of professional advisers – such as an accountant, tax adviser, auditor or stock broker – takes time, patience, money and confidence. If you are already in business, you may have the legal skills and abilities necessary to run an SMSF.
Even though you’ll most likely have an accountant to help prepare the annual tax return for your SMSF, running an SMSF can increase the amount of paperwork you will to do at tax time.
Although many ‘off-the-shelf’ products exist, operating and compliance costs are high and, in most cases, you will lose access to wholesale or group rates for fees, advice and insurance. And, don’t forget the cost of auditing your fund. You should bear in mind all costs for advice, auditing, brokerage, bank fees, accounting fees and corporate compliance costs will need to be covered out of your fund in the same way as your membership fee covers these in your current fund.
Ask yourself, are there specific assets classes, investments types, growth opportunities or specialist skills that can’t be found in my current fund? If not, then you may want to reconsider. If you’re still interested in your own SMSF, then do a little more research. Check the websites of public offer funds first and find out if they can meet your needs. Search online for information on service providers and make sure you visit the ASIC and ATO websites for information, fact sheets and checklists on the operational aspects of SMSFs.
Want more information on SMSFs?
Check out the SMSFs – The facts fact sheet to get more technical information on the structure, rules and administrative responsibilities that will apply to running your own SMSF.
The Australian Securities and Investment Commission has developed a guide for people who are thinking about self-managed super.
The ATO also has a section about self-managed super funds and a range of other useful resources that you can download from their website as well as several short videos to explain the different aspects of running your own SMSF. Check some out here:
Why do I want an SMSF?
You can’t do it all yourself
Sole purpose test
Separation of assets
Record keeping in your SMSF
Loans and early access
Planning for the unexpected (relationship breakdown, incapacity, death)
SMSF trustee – individual or corporate
Borrowing or limited recourse borrowing arrangements
Super contributions cap
As with any major financial decision, we suggest you get advice from a licensed financial planner or professional. We provide our members with access to financial advice, on the phone and face-to-face, and can put you in touch with a licensed financial adviser who is independent of Qantas Super but familiar with our fund.
To arrange a financial advice session, simply call the Qantas Super Helpline on 1300 362 967.