Self Managed Super Funds – do they really manage themselves?

Don’t let the name fool you, while Self Managed Super Funds (SMSF) might sound easy, there is a lot involved that needs to be considered.

Should you self manage your super funds?

Self Managed Super Funds are essentially a legal tax structure with the sole purpose of providing for your retirement. They operate under similar rules and restrictions as ordinary super funds, though the set up costs and annual running expenses can be high so you’ll need a large balance to make the fund cost effective.

While the idea of managing your own super fund can seem advantageous, the best government advice regarding Self Managed Super Funds  (SMSF) is to consider this option – only if you are fully committed and capable.

Consider your options

If you’re considering setting up an SMSF because you’re not happy with your current fund, or the rate of return or the way your money is invested, there are other options to consider. Campbell Green are experts in super and help you sift through the information to find the right option for you.

The legal realities of Self Managed Super Funds

Many people assume a SMSF to be advantageous in many ways. But in reality, there are just as many pitfalls as there are advantages. As regulated by the Australian Tax Office, a SMSF is a private superannuation fund that you manage yourself, exclusively for your retirement funds.

While taking control and making decisions for your own future may seem attractive, there’s also plenty of time consuming hard work and responsibility involved. Essentially, the Australian Tax Office suggests that those with a lot of super and an extensive knowledge of both financial and legal matters as suitable candidates for managing their own superannuation funds.

Ask yourself these questions before deciding

Some questions you may want to consider before you decide include:

• Are you aware of all your legal responsibilities when it comes to Self Managed Super Funds?
• Do you understand the different investment markets?
• Are you capable of managing a diversified portfolio of investments?
• Do you know the tax implications of a SMSF?

Those that manage their own super funds, whether for themselves or for others, are generally very highly skilled professionals with years of relevant experience in how best to invest money. Are you genuinely confident that you can accurately measure investments and returns?

Seek reputable advice before committing

The best advice for anyone considering managing their own super fund, is to seek the counsel of a reputable financial adviser who can help you weigh up the pros and cons of advice of a professional.

With Self-Managed Super Funds – the buck stops with you

If you do decide you do want to manage your own super fund, one of the first things to know is that all investments and decisions you make are entirely your responsibility – even if you employ professionals to help you. At the end of the day, if you are a director of your own super fund, you are ultimately the one who is responsible both financially and legally.

Other factors to consider before going establishing a SMSF is to know that you must carry out the role of trustee or director, which imposes important legal obligations on you.  If you don’t adhere to the legal requirements of a SMSF, the penalties and repercussions can be serious. You will also need to set and follow an investment strategy that will ensure the fund is likely to meet the financial needs of your retirement.

Up to four members per Self Managed Super Fund

A SMSF can have up to four members. All members need to be trustees of the fund – or directors if there is a corporate trustee. All members must also accept responsibility for any decisions made about the fund- and for complying with all the relevant laws regarding your SMSF.

If there is more than one member in your SMSF, it is strongly advised that have you a detailed written plan that outlines what will happen in the event of one or more of the members face a period of ill health, or death, or a relationship breakdown.

Self Managed Super Funds – Cost both time and money

All this would take time, so another factor you would need to consider, is would you have enough time to research investments and then manage the fund? As well as time, there are also costs involved in managing your own fund, so you would need to budget enough money for ongoing expenses such as professional accounting, tax advice, auditing, plus other legal and financial advice when required.

To ensure compliancy, you will need to keep comprehensive and up to date records and arrange an annual audit by an approved SMSF auditor. Other expenses you would need to factor in, include the costs for insurance, including income protection insurance and total permanent disability coverage. If you do go ahead and set up your own super fund, you will need to purchase your own insurance separately, so make sure you look into your options before closing your current super account as age and health issues can limit your ability to buy a policy, plus there may be an increase in your premiums.

Now you’re armed with the facts, if a Self Managed Super Fund is something you’d like to learn more about, contact us today and speak to one of our Superannuation experts.