Self Managed Super Funds – or SMSFs – is a term that is slowly catching on with people as they realise just how much money they’re accumulating into super.
Because the younger generations are going to be earning superannuation through their entire working lives, many of them are going to want to take far more control over what is effectively their biggest investment, than to simply leave it with a third party and hope for the best. This is the appeal of SMSFs – they do allow the individual to take a far greater level of control over their super.
There’s a lot of mystery out there about SMSFs, so, before you go and set one up, there are a couple of things you need to know.
1. You’re not going to get to use the money any earlier
One of the most common misconceptions about SMSFs is that people think that they’re going to be able to “use” the money. It’s true in a sense that you’ll be able to build your own portfolio of investments, and thus not rely on the capabilities of a super fund manager, but you’re not going to be able to use the money for personal purchases any earlier than anyone else – i.e. you’ll get the money at retirement. SMSFs are not a sneaky way to make big purchases like property. Rather, they offer the ability for you to maximise your retirement savings in a manner that best suits you.
2. SMSFs are not for people just starting out… or individuals
The “self” in “SMSF” is a little misleading at times; though it’s possible to set up a SMSF by yourself, for yourself, it’s rarely the recommended way of pooling super. More often, a married couple or small family unit will create a SMSF together, and then make investment decisions as a unit.
This is party for the sake of the security of the investments and to help mitigate against the risks of errant investments, but additionally, it’s because the money required to capitalise on the benefits of SMSFs is substantial. Though there’s no minimum required by ASIC to create a SMSF, realistically, unless you’ve got $200,000 in super, a cost/benefit analysis just won’t stack up. It’s much more likely that a married couple will have $200,000 in super together than an individual will, especially earlier on in their working lives, where establishing a SMSF can have the greatest benefits.
3. Having a SMSF doesn’t mean you should go it alone
As the holder of a SMSF, your legal and regulatory requirements are significant. You’ll need to demonstrate frequently that you’re correcting holding fund assets, complete an annual report, and know how to properly set up the SMSF in the first place. For many this can be daunting.
Rather than attempt to meet these challenges alone, many of those looking to set up SMSF look to specialist advice and planners. Good advice will be able to outline for you the requirements that you face in a concise, understandable manner, and then provide good advice on how to remain compliant. It is highly recommended that, even if you know what you’re doing, you have another expert look over your management of your SMSF, to spot anything you might have overlooked.
Establishing a SMSF does give you the greatest control over your assets, and is a worthwhile option to consider for this reason. As it is an emerging concept, however, it’s important to do your due diligence, talk to the experts, and make sure you properly understand what an SMSF is, does, and requires of you before taking the plunge.
Kris Kitto is the director of Superstash, mobile investment service for Self Managed Super Funds.