You don’t have to be rich to start your own super fund
A couple with a combined super balance of $100,000 have enough money to successfully run their own super fund – a ‘self-managed super fund’, or SMSF.
Ben Smythe of SMSF specialists Heffron Consulting says the days of needing at least $250,000 to start your own super fund are long gone. “The argument that you needed $250,000 was driven by the nanny state idea that if you had less than $200,000 you were not competent to look after your own financial affairs and that costs would result in a management expense ratio (MER) of 10% for an SMSF,” says Smythe. “Now if a couple has a combined superannuation balance of $100,000 the market should be able to provide services at an MER of 1.5% because those sorts of investors are more likely to use term deposits and other cost-effective investments.”
Technological improvements, including the development of online SMSF administration platforms, have taken a great deal of the pain out of managing your own super.
Some super providers even offer to establish your SMSF for free if you subscribe to their online administration platform.
Currently over 50 organisations are offering specialised SMSF administration services in Australia that can help with setting up your trust deed, choosing the right structure, managing your audits and other compliance considerations.
These administration providers may also have associations with financial planners and brokers if you need assistance/advice with your investment decision-making.
However, according to Smythe, you don’t have to choose complex investments or have a big portfolio to manage your own super successfully.
He reports that increasing numbers of younger people are turning their back on off-the-shelf super funds to start their own SMSFs. “Something like 45% of new SMSFs are being started by people under the age of 45,” he says.
Here are the steps you should take before making the decision to switch to self-managed superannuation and If you want to find out how much you can borrow, use our SMSF calculator.
1. Decide whether starting an SMSF is right for you. It’s best to have an interest in and some experience as an investor before deciding to manage your own SMSF. Even if you decide to use an administration service, as the trustee of your own fund, you will be responsible for ensuring it complies with all relevant super and tax laws. That means you’ll need enough time and financial know-how to make sure it is running smoothly.
2. Carefully consider who should be in your SMSF. Most people include their spouse and other family members. The decision to include children should be made carefully.
3. Choose the right structure. You can have individual trustees or a corporate trustee, for instance. These are complex decisions so attend some webinars, seek information from the Australian Taxation Office or from a number of SMSF specialists before deciding which structure to use.
4. Sort out how to keep costs low and profits high. The key is to keep it as simple as possible. There’s no point starting your own SMSF if the administration costs are higher than the fees you’d pay on your existing fund. Remember to include costs for things like the compulsory annual audit and preparation of returns if you choose a corporate trustee structure
5. Don’t forget insurance. Most industry and for-profit super funds include life, disability and income protection insurance in their offerings. If you have your own fund you will need to organise these insurances yourself.
TIP: READ YOUR LATEST SUPER STATEMENT WITH CARE
Many super funds lost money in the last half of 2011 so if you’re in the balanced investment option of your super fund or a growth option with exposure to shares, read your last (or next if you haven’t got it yet) super statement carefully. Your account balance may have actually gone down, even after your 9% employer contributions. If this has happened, don’t panic. Super is a long-term investment but consider changing investment options, re-assess your fund’s fees and consider an SMSF as a lower cost alternative that gives you more investment control.
-- By Jackie Pearson