If you are thinking about starting a self-managed super fund make sure you take the time to research what is involved.
Some people want the hands-on control that comes with a self-managed super fund (SMSF). However, with added control comes added responsibility and workload.
To run a SMSF, you will typically need:
- A large amount of money in the fund to make set up and yearly running costs worthwhile – usually at least $200,0001;
- To set money aside each year to pay for ongoing expenses such as professional accounting, administration, tax, audit, legal and financial advice costs;
- Plenty of time and energy to manage the fund;
- Financial experience and skills so you are more likely to make sound investment decisions; and
- Separate life insurance, including income protection and total and permanent disability cover.
You can pay an adviser a fee to do the administration or help with the investment decisions for your SMSF. However, you cannot pass on the responsibility of being a trustee or director. Ultimately, it is your call and your money and if anything goes wrong it will be your responsibility as a trustee of your fund.
What if something goes wrong?
Sometimes things can go wrong. For example, you may lose money due to theft or fraud, or you may face an unpaid insurance claim or deal with a claim from a beneficiary. Unlike other superannuation fund members, SMSF members do not have access to any special compensation schemes.
|Problem|| APRA* -regulated funds
APRA-regulated funds are eligible for compensation where they suffer loss as a result of fraud or theft.
SMSFs are not eligible for compensation if they suffer loss as a result of fraud or theft.
APRA-regulated funds must address member complaints. Where complaints are not resolved members must be offered access to a free and independent complaints resolution service such as the Superannuation Complaints Tribunal.
|SMSF trustees/members must resolve their own complaints. This may require costly legal assistance. SMSF trustees/members do not have access to the Superannuation Complaints Tribunal.|
The trustee of an APRA-regulated fund must be registered or licensed by APRA. APRA funds are subject to a substantial prudential regime.
|SMSFs are subject to a less onerous prudential regime. SMSFs are subject to compliance-based regulation by the ATO.|
*APRA – Australian Prudential Regulation Authority which oversees most members of the superannuation industry
Questions to ask yourself before you set up a SMSF
Do I fully understand all the legal responsibilities I am taking on as trustee?
Do I have the time, expertise and motivation to actively manage my super?
Am I confident I can be comparable with professional investment managers through my investment strategy?
Do I have enough money to make it worthwhile, given the annual fees and expenses required to pay for accounting, administration, legal, audit or tax advice?
If something goes wrong, am I satisfied with the lower levels of protection that apply to SMSFs, compared to APRA-regulated super funds?
What will my partner do if I pass away, or visa-versa? Will they/I be able to manage the responsibilities of running a SMSF?
Will I be able to obtain comparable life insurance, Total and Permanent Disability Insurance and Income Protection Insurance outside of superannuation? Insurance cover within super funds is generally provided at group (discounted) premium rates, there are Automatic Acceptance Limits (insurance granted without having to be individually assessed) and the cost is automatically deducted from your super account.
If you answer no to any of these questions, you may not be ready or suitable to set up and manage a SMSF.
If you would like to discuss your options regarding SMSFs, or if you need advice regarding your super, QIEC Super offers access to personal financial planning through QIEC Financial Planning Fees may be charged for the provision of personal advice, but where the advice relates to your superannuation, these costs may be deducted from your superannuation account. All fees will be explained to you in detail prior to any advice being given and there are no ongoing commissions as our planners work on a fee-for-service basis.
To make an appointment withQIEC Financial Planningplease call us on 1300 360 507.
Information for this article was obtained from the Australian Securities and Investments Commission’s (ASIC) MoneySmart website. For more information please refer to https://www.moneysmart.gov.au/superannuation-and-retirement/self-managed-super-fund-smsf