16 September 2009
Should I have my own superfund?
Interestingly in March 2009, there was nearly $330 billion
invested in Self Managed Super Funds (“SMSFs”), representing about 32% of the
whole superannuation industry's investments. It's
the largest sector of the superannuation industry.
Interestingly, the value of corporate,
industry, retail and public sector funds fell by an average of 15% from March
2008 to March 2009. The value of SMSF
fell by only 4% over the same period, which probably reflects the types of
investments made within an SMSF (more in direct property and cash and less in
shares). With over 400,000 SMSFs in
Australia, it could be time to ask – would an SMSF be suitable for me?
What is an SMSF?
An SMSF is a specialised superannuation trust that can be
established for up to four people for the sole purpose of providing retirement
benefits to its members. In other words,
it’s your own super fund.
An SMSF needs to have:
deed. This establishes what the fund can
or can't do. An SMSF trust deed needs to
be reviewed regularly to make sure that it is kept up-to-date.
All members of the fund have to be
trustees. You can act as individual
trustees i.e. in your name, or appoint a company as a trustee, in which case all
members need to be directors. You will need professional advice as to which is
suitable for you.
investment strategy. This sets out how
the SMSF will invest and addresses risk, return, diversification, liquidity,
cash flow, asset allocation and the ability to discharge existing and
prospective liabilities. Again, this is
an area where you should probably get professional advice from a trusted
Under the superannuation 'choice of fund' legislation, the
majority of people can request their employer to pay contributions into their
What's involved in setting up and running an SMSF?
It is reasonably simple to set up your own SMSF.
Your professional advisor can help you
here, or you can do it yourself.
If you have decided to have a company as trustee, all you need
to do is establish the company to be the trustee and buy an SMSF trust deed. This normally costs around $800 to
$1,500 and takes about one week. There
are many businesses that sell SMSF trust deeds. You
need a deed that is fully up-to-date with the laws and that provides maximum
flexibility. For example, the deed
should permit the fund to borrow. Then
you will need to apply for a Tax File Number and an Australian Business Number,
and you will have to establish a bank account in the fund's name.
Once all this has been done, you might
like to roll over your existing super accounts into your new fund and change
your payroll details, so that your employer can contribute into the new fund.
You will need to appoint an accountant
and auditor (probably from the same firm) to prepare your SMSF accounts, tax
return and audit every year.
Once your SMSF has been established, you need to manage it and
its investments, and in particular, keep proper records of all transactions. This will be essential if your SMSF
is ever audited by the Tax Office.
At least in the beginning, you should probably be guided by
professional advice, whether from your financial advisor or your accountant
Two major benefits
There are two main benefits to consider in establishing an
SMSFs can be very cost effective,
but it really depends on the type of investments you hold and how frequently you
change those investments. An SMSF will
cost in the range of $1,500 to $2,500 each year to 'maintain'.
Therefore, if you have $250,000 in your
SMSF, the total maintenance cost is in the range of 0.60% to 1.00% which,
depending on the investment strategy of your SMSF can very cost effective. One particular aspect of having your
own SMSF is that there are a number of fixed costs that don’t increase depending
on the size of your fund. For
example, the cost of auditing your fund and preparing the fund’s tax return will
probably be the same, whether you have $250,000 or $2.5 million.
The key here is to compare the
costs of different strategies – whether an SMSF, an industry superannuation
fund, or a retail superannuation fund.
You have to do the homework, together with your financial advisor.
own SMSF you have control, subject to the fund’s investment strategy and the
technical rules about SMSF investments, over what you invest in, when you invest
and when you change your investments.
this level of control is for you, only you, together with your financial
advisor, can decide. Some people
feel more comfortable being able to control their superannuation investments. For others, they would prefer to have
their investments professionally managed.
If you have
the experience, knowledge and confidence to manage your SMSF’s investments, then
having your own SMSF can be a rewarding challenge.
When to use? Not for everyone
An SMSF can be an appropriate vehicle if you want the
flexibility to manage your superannuation investments directly.
However, having an SMSF is not for everyone, and using an
industry superannuation fund or a retail superannuation fund can provide you
with sufficient flexibility and cost-effectiveness. It’s your choice.
Strategic advice is critical
Most people don’t have the skills and experience necessary to
set up and manage an SMSF on their own.
This is where strategic financial advice is critical. Find a trusted financial advisor and
talk with them. With his or her
help, you can decide whether an SMSF is suitable for you.
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Head of Funds Management
t +61 3 8610 2811
Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
Read full profile here.
La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 115 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.
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