An interesting statistic has emerged out of the Global Financial Crisis and the woes of superannuation funds.
A study into superannuation investments found that the value of corporate, industry, retail and public sector funds fell by an average of 15% from March 2008 to March 2009.
But the value of Self Managed Superannuation Funds fell by just 4% over the same period.
The reason for the lower fall is believed to be that operators of a SMSF tend to put a larger portion of their money into property whereas managed funds tend to operate far more intensively in the share market.
As there are now over 400,000 SMSFs in Australia could it be worth asking if it would be suitable for you?
First and foremost what is an SMSF?
An SMSF is a specialised superannuation trust that can be established for up to four people for the sole purpose of providing retirement benefits to its members. In other words it’s your own super fund.
For it to operate it needs to have:
• A trust deed that establishes what the fund can or can’t do
• A trustee. All members have to be trustees or members of a company acting as the trustee.
• An investment strategy that sets out how the SMSF will invest and address risk, return, diversification, liquidity, cash flow etc.
If you’re not up with all of the above, you can gain professional advice from Baggetta & Co on how to set it up and operate it.
Many people have the belief that a SMSF is just for business owners. Not so, as under the superannuation ‘choice of fund’ legislation people can request their employer to pay contributions into their own SMSF.
What’s involved in setting up?
It’s reasonably simple to set up – either by way of an advisor or you can do it yourself.
If you’re to have a company as the trustee, you need to establish the company and buy an SMSF trust deed.
You will then need to apply for a Tax File Number and an Australian Business Number and then establish a bank account in the fund’s name.
Once all that’s done you might want to roll over your existing super accounts into your new fund and change your payroll details for contributions to go into the new fund.
You will need to appoint an accountant and an auditor to prepare your SMSF accounts, tax return and audit.
Once established you need to manage it and its investments and in particular, keep proper records of transactions.
In the beginning you should be guided with professional advice which we can provide but once you’re up and rolling you can either go it alone or continue to use our services.
An Self Managed Super Fund can be very cost effective but it really depends on the type of investments held and how frequently you change them.
One particular aspect is that there are a number of fixed costs that don’t increase according to the size of the fund.
For example the cost of auditing and preparing the fund’s tax return will probably be the same whether you have $250,000 or $2.5million.
The key here is to compare the costs of different strategies – whether an SMSF, an industry superannuation fund or a retail superannuation fund. Once again, we can help you with this.
Once your SMSF is in operation you have control subject to the technical rules about SMSF investments.
Some people feel more comfortable being able to control their superannuation investments while others prefer to have their investments professionally managed.
If you have the experience and confidence to manage a SMSF it offers a rewarding challenge but for those starting out we would recommend having help.
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The information provided on this website, including the material and contents provided in the website publications, are informative in nature only and you should not act specifically on the basis of this information alone. It should not be used as a substitute for legal, business, accounting, tax, financial planning or other professional advice. If expert assistance is required, professional advice should be obtained.
Paul Baggetta is the Founder & Principal of Baggetta & Co. Paul Baggetta has been a Taxation Accountant since 1981, a Financial Planner since 1998, and in 1993 qualified as a Real Estate Licensee, holding a Triennial Certificate (currently not trading) and operated his own Real Estate business for property investment clients for over 5 years as a second business.
Financial planning services are provided by Paul Baggetta as an Authorised Representative (No. 261469) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. Australian Financial Services License No. 223135.
Taxation & Accounting services are provided by Paul Baggetta as a Registered Tax Agent (No.61487008) and is a Member of SMSF Association, FIPA & NTAA.