The primary aim for a Self Managed Super Fund is to provide you additional income (a pension) that you can enjoy by the time you reach the age of retirement.
By way of background, super funds are referred to as retirement plans in the US, they are also called pension schemes in the UK and Ireland. Only in Australian and New Zealand are they called superannuation plans (or super). In Australia, employers are required by law to contribute an additional amount based on a proportion of an employee’s salaries and wages (currently 9%) into a complying superannuation fund.
Superannuation is typically paid out in the form of a guaranteed life annuity. 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 generally set up for a small number of individuals and are governed by SMSF rules, as set out by the Australian Taxation Office (ATO). SMSFs are typically 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.
There are certain rules and regulations for all types of superannuation funds that must be firmly obeyed, otherwise the trustee’s cooperation will be put into question. As with all other types of super funds,, SMSFs also have rules and policies which need to be followed. This may include guidance on the types of investments that are allowed and the structure that the investment is being made under. This will not only protect the SMSF from making bad investments, it will also ensure that the SMSF rules are being complied with.
Some people prefer a self managed super fund over industry super funds, as it allows them the flexibility and freedom to devise their own investment strategy, as long as it is in compliance with the rules and regulations.
When seeking to understand the SMSF rules, an essential task to undertake is to complete the trust deed provisions concerning the use of SMSF. The Australian Superannuation Industry Supervision Act 1993 outlines all the rules a superannuation fund must comply with. It covers general areas relating to the trustee, investments, management, fund accounts and administration, enquiries and complaints.
The Act also regulates the operation of superannuation funds and sets penalties for trustees when the rules of operation are not met.
Having and independent SMSF auditor to advise on the most effective strategies and supervise compliance is essential to the success of any self managed super fund.