Setting up your own self-managed super fund provides you with the freedom to manage your own finances and have a say in what you’re investing in. It can be challenging but managing your own super fund doesn’t have to be put in the ‘too hard’ basket.
With some research and the right tools (and maybe a little help from the team at Inovayt!) you’ll be on your way to managing your own super.
First thing’s first – what is a self-managed super fund?
In the simplest way possible, a self-managed super fund (SMSF) is literally that; you are managing your superannuation yourself. Instead of setting up a fund with a retail or industry super fund, you create your own fund and manage every aspect of it.
When you manage your super, you allocate money that would normally go into a retail or industry super fund into your SMSF.
Upon setting up your own fund, you are eligible to have up to four members in the fund – such as friends or family – or a corporate trustee. No matter which option you choose, you are responsible for the fund.
What are the main benefits of managing your own super fund?
While there are complexities, managing your super fund has many advantages for all members.
The members or trustees of your fund must be made up of two to four individuals for an individual trustee fund, or one to four individuals for a corporate trustee fund.
According to SuperGuide, “If a fund chooses to have a corporate trustee, each SMSF member must be a director of the company concerned. The company must be registered with the Australian Securities and Investments Commission (ASIC) and each director of that company must also be a member of its corresponding SMSF.”
The main advantages of a SMSF are:
- Having a much wider range of investment options, including the ability to ensure your funds are being invested into projects that align with your values. For example, if you have strong environmental beliefs, you can choose not to have your funds invested in unsustainable projects or those that may be perceived to be un-environmental.
- You have the opportunity to use suitable tax strategies to increase your savings.
- You have more room to move around both accumulation accounts and pension accounts.
- There is complete transparency with investments.
- All costs involved have a limit and are not based on a percentage of your current super balance.
Managing your own super fund also means you can choose and control where your retirement savings are invested.
Inovayt’s Financial Planner, Luke Mase, shared that one of the main reasons people often come to him is: “Situations where people can buy and invest in property through their SMSF, which you can’t do in an industry super fund”.
What are the major differences between SMSFs and industry super funds and what can I expect?
We’re glad you asked! Setting up and managing a self-managed super fund is something you shouldn’t consider unless you understand what is involved and you’re committed to take on the risk and responsibility that comes with this process.
What do I need to know to set up my own SMSF and do I need any financial knowledge?
As we’ve mentioned, you manage ALL aspects of a SMSF, right down to the investments within it. You need to be prepared that managing your own super will take time, even if you consult professionals.
There are ongoing activities you need to manage, including:
- Investment research
- Setting up and following an investment strategy
- All the bookwork involved, including accounting, keeping records, and making sure you have an audit every year by an approved SMSF auditor.
There are also costs to be aware of when setting up your own SMSF including:
- Tax advice
- Legal advice
- Financial advice
Here’s a fun fact for you: According to the ATO, the average operating cost of running a SMSF in 2018 was $7,710 per annum. On the other hand, the fees associated with an Industry SuperFund are (on average) 0.94% to 1.28% of your total superannuation account balance.
Financial and legal knowledge is also extremely important. It’s not enough to have one chat with a financial advisor. You need to have a solid understanding of things such as investment markets and portfolio management, tax, super and investment regulations and laws, how to set up and manage an investment strategy that meets your needs and organisation of insurance for all members of the fund.
“We see a lot of people come in who want to ‘be in control’ of all of their money,” Luke says.
“However, when we ask them what experience and knowledge they have when dealing with money, 9 times out of 10, it’s next to none. We tell them that having no financial knowledge but wanting to take care of your own money would be like having no knowledge about cars and choosing not to see a mechanic.
Who do I need to have on board if I’m managing my own super?
Although you are responsible for all of the decisions made within your SMSF, there are a few professionals you should consider using for assistance and advice, including:
- An accountant for setting up the financial systems and to prepare the fund’s accounts and operating statements.
- A fund administrator who can help out with administration tasks during the start-up of your fund and the day-to-day running, to help you meet your reporting and administration obligations.
- A legal practitioner who can prepare and update your fund’s trust deed.
- A financial advisor who can help you prepare an investment strategy, while advising you on different types of investment and insurance products.
- An approved SMSF auditor to audit the fund.
- A tax agent to complete and lodge your annual return, represent you and your SMSF when dealing with the ATO, and to help with general tax advice.
I’m still interested – what are the risks?
Anyone who is involved with a SMSF is responsible for all the decisions made and MUST comply with the law.
Other things you need to consider:
- YOU are responsible for the fund and are personally liable for any decision made, regardless of whether you get help from a professional, or someone else in the fund.
- Your investments might not turn out how you expect.
- If your circumstances change (e.g., you lose your job, are injured at work, etc) you are still responsible for managing your super fund.
- You need to consider the possible negative impact on your SMSF if one of the members falls ill, or passes away, or if there is a breakdown of relationships between members.
- If money is lost through fraud or theft, you won’t have any access to compensation schemes or the Superannuation Complaints Tribunal.
- You might lose the insurance products that come with industry and retail funds if you switch to a SMSF.
- Setting up and managing your own super fund also must run solely to provide benefits for the members or their dependants, and mustn’t be set up as a way to get early access to your super – this is illegal.
- Inovayt’s Luke Mase also warns that even though you can invest in property with a SMSF, it shouldn’t be the only market where you invest in case it takes a tumble. All too often, Luke has seen clients who are keen to set up a SMSF with the sole purpose to invest their money in property.
“Most people’s money is tied up with their mortgages or other investment properties, so investing only in property within your superannuation is putting all your eggs into the property market basket.”
While this may all seem like a lot to take in (and don’t get us wrong – it is), there’s a reason for that. It takes a lot of time and work to create and look after a self-managed super fund, but by doing so, you can also reap the rewards you have set for yourself. The team at Inovayt can provide education about the compliance requirements, costs and processes involved with setting up a SMSF.
Get in contact with our team to have a chat about starting your own super fund, or superannuation in general.