Introduction to the Pros and Cons of Self Managed Superannuation Funds
With the arrival of “Choice of Fund” more people than ever are asking whether they should have a self-managed superannuation fund (SMF).
The Australian Primary Superannuation Fund can’t advise you one way or the other, and anyone considering an SMF should seek independent professional advice.
What we can do is highlight some of the issues to think about if you are considering an SMF.
Issue 1: Why are you considering an SMF?
SMF’s are tightly regulated. If you’re hoping to use an SMF to finance a business, buy a holiday home, pay off the mortgage or for any purpose other than genuinely planning for income in retirement take care; you could find yourself in difficulty with the Australian Taxation Office.
Issue 2: Is it what you want to do?
People who understand and put time into managing their investments can do very well out of an SMF. So can others if they get qualified independent advice.
But if you have neither the time or interest to delve into investment matters perhaps an SMF might not work for you.
Please also be aware that SMFs involve compliance and tax obligations that can become time consuming and costly.
Issue 3: Do the costs stack up?
It is generally accepted that SMFs can be expensive to run, but the costs can also be worthwhile.
After paying for establishment of an SMF, there are base and optional costs involved in running an SMF.
While you might be able to strike a better deal on costs such as audit, advice and administration; SMFs generally don’t become cost competitive until they hold between $100,000 and $200,000 in assets.
On the other hand, whether the costs stack up or not can be a matter of personal preference. You might think it worthwhile paying more in costs to gain greater control over investments. That’s a personal judgement, though it may still be wise to know where you stand on the basis of pure cost comparison.
Issue 4: How DIY will your DIY fund be?
Unless you’re a registered auditor with investment experience and time to plan your investments, an SMF will never be a true Do It Yourself experience.
Before taking on an SMF identify all the roles involved and decide which you want to DIY. This should give you a good idea of the operating costs and your time commitment.
If you don’t want to do anything yourself but still want an SMF, perhaps you want it as a status symbol. That’s fine, but remember, it might take more effort to get out of an SMF than a car lease; so it’s wise to plan how your SMF will work before spending a cent on establishment costs.
Issue 5: What about insurance?
The super fund you’re with now might offer insurance on terms that may not be available to an SMF.
If insurance is important to you, check out whether you can take your insurance with you to your SMF.
Issue 6: Control
People who make SMFs work for them are often people who value control and understand how to use control to achieve their goals.
Ask if you have a real wish to gain control over your investments as well as the knowledge and experience to make it work for you.
The potential benefits of having control over your superannuation go beyond investment. A clever trustee can generate tax advantages, particularly during the move from accumulation to pension phase; though there are pitfalls, so go into your SMF with eyes wide open and a sound plan.
Conclusion
SMFs might not be for everyone, but they can be a good choice for those with the time, knowledge or desire to run their own superannuation fund.
Like every financial decision, a decision to start up an SMF should be made with a good understanding of the risks and opportunities involved.
Disclaimer
This article provides general information only and may not be relied on as legal or financial advice. Australian Primary Superannuation Fund (Fund) is a Regulated Superannuation Fund issued by Farm Plan Pty Limited ABN 81 067 241 016, AFSL 219723. A Product Disclosure statement can be obtained from the issuer and should be considered before deciding whether to acquire, hold or dispose of an interest in the Fund. Neither Farm Plan Pty Limited nor the Fund provides advice or services on or to Self Managed Superannuation Funds.
Source: Primary Focus, Issue No.4, 2005 |
