Knowledge of how the wheels of economy move and how they impinge on the individual bread earner’s life and his future surely can pay handsome dividends.
Hidden in every one of us are an economist and a financier. They come alive in the efforts we make to secure our economic freedom now and in the future. As a wit put it, the earliest financier was Noah because his was the only stock that was floating while everybody else’s was in liquidation!
Popularity of SMSF
· The average Australian seems to be inclined to manage his own superannuation funds judging from the number (around 300000) of self managed funds operating now.
· About 2500 accounts are added every month and as of December 2003, $ 125 billion worth assets were under management.
· Self-managed superannuation funds comprise 20% of the superannuation industry.
· The average account balance of a self-managed super fund is $235,000.
You are your own Trustee
There is a significant difference between Superannuation Funds and Self managed Super Funds, also known as DIY
(Do-It-Yourself) funds. The members of self-managed super funds are also the trustees. – they control the investment of their contributions and the payment of their benefits. With all members being trustees, they are in a position to ensure their interests as members are protected.
The special features of a self-managed super fund generally are:
· a trust deed is framed in accordance with the Superannuation Industry (Supervision) Act 1993 (SIS Act)
· it has not more than four members
· each member of the fund is a trustee
· no member of the fund is an employee of another member of the fund
· no remuneration is payable to any of the trustees for services rendered by them as trustees.
Attractive Features
· Self-managed funds give the workers the freedom and flexibility to invest their superannuation contributions in their best interest. They are managers of their own financial future.
· The cost of management is the lowest .
· Switching of funds according to their performance becomes easier and free of bureaucratic delays.
· The DIY Fund can become your allocated pension fund after retirement.
· The Government gives people a tax break for money earned from superannuation.
The Tax Haven for Retirees
Self Managed Superannuation Funds also provide for retirement pensions such as allocated Pensions. Such pensions are a tax advantaged income stream and are paid from the retirement capital through a Family or Public Superannuation Fund.
The Government has made SMSF a tax advantaged channel of investment with a view to encouraging retirees to use it to fund their retirement. There is no income or Capital Gains tax. The income from it is entirely tax-free. Also a tax rebate is available on the annual pension payment to investors older than 55 years of age.
The amount invested in an allocated pension through a SMSF or public superfund remains clearly defined as personal capital and remains a family asset, immediately accessible at any time.
The cost, time and effort involved
Self-managed super funds have the largest proportion of their assets invested in listed shares. Currently, these funds have a much greater proportion of their assets invested in cash than do other superannuation funds.
However, SMSF is not a picnic all the way. It is hard work, according to the Australian Securities and Investments Commission They say that the label ‘DIY’ is a misnomer and it is easier to manage your house and garden (perhaps children, too) than your SMSF, what with the rules governing taxation, trustees and others laid down by the Australian Tax Office (ATO) and Australian Prudential Regulation Authority (APRA).
· The cost of running an SMSF is an estimated $3,000 a year not including the accountant’s fee to set up what is virtually your own investment company.
· It will have to be registered for tax purposes and quarterly tax statements as well as the annual tax return have to be filed.
· You have to add the broker’s fees.
· The time involved in sourcing and researching investment decisions and formulating the investment strategy cannot be quantified.
All this perhaps is the reason why around 160 self-managed super funds reportedly meet with an untimely end every month.
Tips for Trustees
As the familiar proverb goes, a fool and his money are easily parted. Therefore, one has to be worldly wise in administering one’s own super. The ASIC advises trustees that-
· If you are thinking of leaving your fund to get better returns from your own DIY fund, make sure you know how you’ll achieve this by developing a sound investment strategy.
· Make sure your accountant/consultant/adviser is licensed to give you advice about setting up a self-managed super fund
· Such of them who do not have an Australian financial services licence can only advise on the establishment, operation, structuring and valuation of an SMSF, but not about investment strategy or about switching of funds.
· Be careful that those who advise you to switch funds do not have any personal interest in the funds suggested.
· Be doubly vigilant about unlicenced marauders who prowl around in search of the credulous investor. They are known to make tall promises and then siphon off your money and leave you high and dry.
· You would be well advised to read the guidelines and instructions issued by the ATO and APRA from time to time.
Finally, be advised that you cannot access SMSF money for purposes other than your retirement needs. SMSF funds are bound by the sole purpose test, which says that superannuation investments are meant only to provide retirement benefits for the trustee(s). This explains why the reason why a tax break is given by the government for the income from superannuation funds.
Conclusion
While it is our duty to secure our financial future through prudence and alertness, it pays to remember the other durable values of life. As the great philosopher Bertrand Russell said, “The most valuable things in life are not measured in monetary terms. The really important things are not houses and lands, stocks and bonds, automobiles and real state, but friendships, trust, confidence, empathy, mercy, love and faith.”