What is a Self Managed Super Fund and What are the essentials?
Working in a specialist Self Managed Superannuation Fund (SMSF) firm, everyday I am exposed to the attitudes, values and beliefs of our clients in association with their finances. At Explore Super, the first question we typically asked is, “What is a Self Managed Super Fund (SMSF)?”.
What is a Self Managed Superannuation Fund?
Over the past decade SMSF’s have increased in popularity, particularly among Australians who wish to take on the responsibility of managing their personal superannuation contributions and balances. An SMSF holds the same ultimate goal of other superannuation funds, saving for retirement. The main difference between an SMSF and other superannuation funds, is that you have complete control over how the ultimate goal is reached and complete control of how your retirement savings are managed. In an SMSF, you, are “the members” and you, are the “trustees”, it is all about “YOU”.
Should I be thinking about setting up a SMSF?
Huge benefits that can be reaped from an Self managed Super, however before setting up an SMSF, you will be asked, “Do you have the desire to control your savings for retirement? Do you have the interest and time to keep up to date with your fund? Are you willing to accept your legal obligations? Do you have the necessary resources to make an SMSF viable?”. If your answer to all of these is ‘Yes’, then you are a contender for setting up an SMSF.
What essentials should I be considering?
When considering the set up of an Self managed Super Fund, there are 5 essentials that need to be fully understood and comprehended before you set up your SMSF.
1) Make sure you have enough funds in super
Amongst advisors there is no general consensus, nor is there any legal minimum level of investment needed for a SMSF. However, as a guide you should have as a minimum $200,000 within super or able to be contributed to your SMSF. Unlike other superannuation funds who may charge fees based upon a percentage of your account balance, typically SMSF compliance and administration costs are based on the types of investments and transactions that you make. Therefore, an SMSF with the same investments and transactions should have the same yearly cost if you have $100,000 or $2,000,000 within the fund.
2) Make sure you have enough time, skills and the right Financial Advisor
By becoming responsible for your retirement saving strategy through an Self Managed Super, implies a commitment of time to be invested into the progression and movement of your fund. This is to ensure that the best investment strategies are selected and as a trustee of the SMSF, you are meeting all obligations both to the other trustees and under law, including the recording and reporting of activities the fund undertakes. To effectively conduct these practices, knowledge of accounting and finance are highly recommended to ensure that your fund can be maintained with the assistance of finance professionals such as an account or financial planner.
3) Make sure you understand all legal obligations, laws and risks
Every financial decision carries some component of financial risk. In running your Self managed Super Fund, it is crucial that you fully understand the legal obligations that each trustee has to the fund. This includes, the auditing and accounting work needed to fulfil legal and Government regulations.
4) Make sure your trust deed and investment strategy are tailored to suit your members
To ensure your financial position reaches its full potential, it is essential that three considerations are given to the types of investments the fund undertakes; the age of the trustees, the degree of risk the trustees are willing to sacrifice and the goals the trustees have for the Self managed Super fund. By evaluating these elements, different types of investment strategies and/or investments, maybe considered ‘not compatible’ with your fund or the trustees within. It is essential that your financial advisor be involved in this process to offer strategic support and guidance.
5) Make sure you have consider all options and seek professional advice
There are several options to how super can be contributed to your fund and managed, whether that be through employer contributions, into your designated fund held by a superannuation company or through an SMSF. Everyone is faced with different circumstances and financial positions, so what works for you may not necessary work for me. Despite advertisements and media comments, the importance and necessity to seek professional advice by an authorised and certified financial advisor, is often overlooked. By setting up an SMSF, you will be one of the trustees for the fund and therefore, legally responsible for all decisions. Setting up an SMSF in particular is a big decision and can have detrimental consequences if not properly set up or managed.
There are many benefits of a Self Managed Super Fund (SMSF), however, as seen, there are several strict guidelines and ‘essentials’ that define it. By understanding what is a self managed super fund you can determine whether an SMSF is right for you.