With the bad returns from most super funds these past years, many people are now thinking about placing their money somewhere else, in particular many Australians are considering setting up SMSF or self managed super fund. But before you start thinking of transferring your entire nest egg to a SMSF, there are a lot of things that you need to consider to help you make the right decision.
Most people already know what SMSFs are. In summary, there are several different classes of superannuation funds in Australia. The most common types are industry superannuation funds and self managed super funds (SMSF)
SMSFs are governed by the rules and regulations set out by the Australian Taxation Office (ATO) and are typically set up for a small number of individuals (5 or less). They are normally set up under guidance from an accountant and need to be audited by an independent SMSF auditor to ensure compliance with SMSF rules and regulations.
When considering setting up an SMSF for you and your family, it is important to know whether it will really benefit you and how. Even if you are unhappy with your industry superannuation fund, setting up an SMSF may not be the right solution for you.
When setting up your own self managed super fund, you will need to contribute an up-front investment and also spend some time with your advisor to establish the right strategy. Typically the up-front investment is about $200,000 or more. Discussing your ongoing contributions and lifestyle goals will help to develop the right investment strategy, although you need to ensure it is compliant with the ATO rules.
The flexibility of SMSFs enables you to use investment strategies that are not practiced by the industry or retail superannuation funds. For example, you can invest in anything from cash, to managed funds, international and Australian shares, residential and commercial property, and even art. The main thing is to remember that your investments need to be made in the right format.
You must also know your nominated trustees for your SMSF. When you set-up your account, you will need to determine who will be involved as trustees aside from your yourself. You may allow up to four names of people to your account. You can also nominate a company to be your trustee.
In 2004, a new licensing regime came into place which requires trustees of superannuation funds to become a “Registrable Superannuation Entity Licensee” (RSE Licensee). The regime is intended to demonstrate that the trustees have adequate human technological and financial resources, adequate risk management systems and appropriate skills and expertise to manage a superannuation fund.
The licensing regime has lifted the bar for setting up an SMSF with a significant number of small to medium size superannuation funds exiting the industry due to the increasing risk and compliance demands.
Having and independent SMSF auditor to advise on compliance management and minimize risk is therefore essential to the success of your SMSF.