Our advisers specialize in the management of Self Managed Funds for AHS’s clients and we hear a huge range of comments from our clients on their super:
“It’s too hard.”
“The rules change too often.”
“The government will stop me getting access to the money in future.”
“I don’t understand it.”
“I can’t do anything with it now, so I just don’t worry about it.”
Wake up call! For most of us, superannuation will become one of our most important assets and in most cases our biggest.
Firstly, your superannuation savings are your money and secondly, if you manage that money and get it working for you now, your fund can become your most effective vehicle for creating wealth.
Your superannuation fund is just a vehicle (like a family trust or a company) which has a range of very generous tax concessions – when money goes in, whilst it is invested, and when it comes out. In addition, what many people do not realize is that they have an enormous amount of choice in how to invest the money put into it.
AHS will help you to understand the bigger picture and the opportunities available with superannuation generally to give you control over your money. Then, once you’re confident on the advantages, Andrew or Heidi will help you to decide whether a Self Managed fund is the best option for you. Together we will take it one step at a time.
What is a SMSF?
A Self Managed Super fund (or SMSF) is a superannuation fund created for up to four members who are also the trustees of the fund. As a member and Trustee you then have total control over your fund, including the investment strategy, and are ultimately responsible for everything that happens within the fund.
Effectively you “control” all aspects of its operation, which is probably the most common reason for members setting up their own funds. Importantly, there are are many rules associated with running your own fund meaning that with the extra control comes significant responsibility.
Benefits of a SMSF
What’s all the hype about? Well, there are several potential benefits in having a SMSF that make it an attractive vehicle for investing your money.
- Investment choice – in a “regular” or public superannuation fund, often your investment choices are limited to shares, managed funds and cash. A SMSF is more flexible around property, fixed interest, collectibles and private equity assets, just to name a few. When your balance has built up to an appropriate level, your ability to access these becomes easier.
- Tax control – All superannuation funds are taxed at 15 per cent which is often a lot lower than your personal tax rate and in addition you are able to deduct any tax credits from things such as imputation credits and possible foreign tax credits. It is often easier to manage these advantages in a SMSF vs a public fund.
- Looking after your family (aka estate planning) – With good advice, a SMSF can also be a more convenient vehicle through which to pass on your wealth to your family after your death. Andrew or Heidi will explain further.
- Borrowing – Since 2007, the government has allowed superannuation funds to borrow but practically, in a public fund the rules have restricted its application. In a SMSF, the rules can be met and several major banks have specialized lending products to suit.
- Cost – The proportionate cost of running a SMSF will depend on the size of your balance and if it is at an appropriate level, the cost can be less than that charged by public funds.
- Pension planning – When you reach retirement or wish to cut your working hours, a SMSF is often more flexible in the provision of a source of income to support your lifestyle.
- Asset protection – While no one wants to think about bankruptcy or financial problems, a superannuation fund is protected from creditors should something go wrong providing you with comfort that your long term future will still be secure.
Is a SMSF right for you?
So all that sounds pretty good? Well, there are also other aspects to consider when deciding on the appropriateness of a SMSF for you. You must consider:
- Your current superannuation balance, potentially combined with a partner – the costs often make it ineffective to hold smaller balances in a SMSF
- Your time commitments – there are more than 90 responsibilities placed on a Trustee to a super fund – do you have the capacity to do all the work required?
- Your interest, awareness and skills – Superannuation is a fascinating area for Andrew and Heidi! They love it – do you?
- The compliance requirements – SMSFs are becoming increasingly regulated and the penalties for not complying with all the relevant rules are high. A serious breach may see you lose almost half of your money and will undo all your hard work so you must be ready to meet the standards required.
If you are definitely interested, the ATO, as the regulator of SMSFs, has an excellent information site available (see the link below) that we recommend every potential trustee read and have on hand. Then call Andrew or Heidi to discuss your options today.
Thinking about Self Managed Super