It seems Australians have been thinking more and more about the benefits of self-managed super funds (SMSFs) as they express concerns about their existing super fund in relation to transparency, liquidity and flexibility.
Despite the control, involvement and flexibility an SMSF can provide, there are a few things people need to consider before deciding if an SMSF is right for them.
Ask yourself the following questions:
- Is the fund strictly for benefits in retirement?
- Do you have the time to manage your own fund?
- Will the benefit be worth the cost?
- How will switching to your own SMSF affect your current superannuation benefits?
Having your own super fund to manage may sound easy. However, as you are the trustee of your own fund you are ultimately responsible for every decision you make. You need to understand there are some things you simply cannot do within your SMSF.
The regulator, the Australian Tax Office, will apply heavy penalties against trustees who break the law.
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How much is enough?
This has been a hotly debated issue since the inception of SMSFs. Different people have different ideas as to exactly how much is needed to set up an SMSF. ASIC has recommended at least $500,000 for an SMSF.
It can be argued that people with less than this could easily manage their own SMSF, particularly if they are planning to make large contributions over time and/or have experience with investing.
The issue, of course, is cost. To remain cost effective it is generally accepted that the greater amount of funds pooled within the SMSF, the lower the cost average. Over the long term, as the SMSF account balance grows, the cost of running the fund becomes even more efficient.
# Paul and Mary are using a Corporate Trustee structure, which means an additional $455 ASIC fee. Bill and Ellie are using an Individual Trustee structure, so the only cost is the SMSF Trust Deed. * The ongoing company fee is a reduced ASIC fee because Paul and Mary are using a shelf company as the corporate trustee, and not an existing company. A shelf company acts as the corporate trustee only and is not associated to any other entity activities. ^ Administration fees charged by Morgans Wealth+ SMSF Solutions service and includes annual audit fee. This is an indicative cost only as the actual fee will depend on the administration/accountant service used. ** Ongoing portfolio fee - estimated average Morgans' Wealth+ fee
Size does matter
In relation to costs, clearly size does matter. There is a significant difference in the ongoing costs for Bill and Ellie compared to Paul and Mary. Even where Paul and Mary incur additional costs due to the corporate trustee structure, their average costs are less than half Bill and Ellie's.
If you would like to discuss whether a self-managed super fund is for you, or you would like to know more about what is involved in running your own SMSF contact your local Morgans office, or speak to your Morgans adviser.
