A self-managed super fund (SMSF) is an increasingly popular choice for Australians. After the GFC, an implicit trust in our super funds has become a thing of the past. Now it’s a far more uncertain relationship. Some measures have been introduced by the government to alleviate the risk procedures of super funds, most notably making it compulsory for super funds to shift the superannuation of those intending to retire in the next five years to a conservative account, as opposed to leaving those soon to depart the workforce financially exposed.
The other major change has happened on the consumer side of things. Self-managed super is the fastest growing area of the sector and is expected to be valued at $2.2 trillion by 2030. People, especially those with significant amounts of money in super, have become dissatisfied with the major funds and are opting to run it themselves. So what does it take to set up your own super fund?
Separate Your Self Managed Super
One of the absolute immutable rules of self-managed super is that the money you invest can only be used for retirement savings. Contravening that comes with serious penalties. This means that all monies, and all interest from those monies, has to be kept separate from personal accounts and cannot be used until retirement.
Administration Of Your Self Managed Superannuation
Organising your own super can be a costly endeavour, both in terms of time and capital. Generally, it’s suggested that if you have less than $200, 000 in super, then the costs of managing it yourself make it prohibitive. On top of which, there are additional ongoing costs of $1,000- $1,500 a year. There are graphs on costs and returns here. It’s also essential that you have a pretty sound knowledge of investment and the legal duties of becoming the trustee of your own super. All of this takes up a significant amount of time, so it’s certainly worth asking some questions about the resources at your disposal before you sign on. There’s an annual audit for self-managed super so meticulous records are a necessity.
Advantages Of Self Managed Superannuation
Control is clearly the greatest advantage when it comes to self-managed super. You can control where you money is invested, and can have greater access to a broader range of investment options. Many self-managed super funds are for the uber wealthy, so there is clearly is a great deal of appeal should you have the money and time.
Self-managed super isn’t covered by the compensation schemes that go with other superannuation funds. Should your money be lost, due to fraud, there is no recourse to another body. Similarly, you’ll need to purchase separate life insurance, including permanent disability insurance. This comes with mainstream superannuation policies, so be sure to cover your bases.
Setting It Up
There are four major steps to set-up a super fund. One, creating a trust deed. You need your solicitor for this one. This document sets out who the trustees are, how they are appointed and how contributions are made. Be sure it’s properly dated and documented. Then, register your election with the Australian Business Register. Once elected, this will give you an Australian Tax Number. Now you need to prepare an in-depth investment strategy, often with the help of a qualified financial advisor, and set up a separate bank account for the fund to comply with separation stipulations.