SMSF 101SMSF 101SMSF 101SMSF 101• Superannuation origins – 1990’s onward…
• SMSF – what is it & why should I have one?
• Issues to consider – cost is not the only one
• What can my fund invest in?
History of SuperannuationHistory of SuperannuationHistory of SuperannuationHistory of Superannuation
• Keating Government introduced compulsory Super in 1992
• Started at 3%, and grew to 9% by 2002
• Plans to eventually rise to 15%
• Current agreement means freeze at 9.5% for next 7 years
• Plan to reach 12% eventually in 2025
Superannuation coverage for males and females, various measures, 1974 to 2012
http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1314/SuperChron
Accumulated superannuation savings, June 1988 to December 2013 ($ billion)
http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1314/SuperChron
Member BalancesMember BalancesMember BalancesMember Balances
• Average balance for males age 60-65 = $114,000
• Average balance for females age 60-65 = $94,000
• Estimated balance required for comfortable retirement = $350,000
• Source – News Ltd
Age PensionAge PensionAge PensionAge Pension
• Pension access age rising from 65 to 70 gradually
• Aging population placing greater strain on available funds
• Changes to Asset tests mean less people accessing the pension or receiving smaller benefits
Super StatisticsSuper StatisticsSuper StatisticsSuper Statistics
• Contributions for the year ended December 2013 = $91.5 billion
• Benefit payments for the same year = $53.3 billion
• Estimated total assets as at 31 December 2013 = $1.8 trillion
• Source - APRA
SMSF’s: Popular and On TrendSMSF’s: Popular and On TrendSMSF’s: Popular and On TrendSMSF’s: Popular and On Trend
SMSF Member GrowthSMSF Member GrowthSMSF Member GrowthSMSF Member Growth
Establishments Wind-upsNet
establishments
Total number
of SMSFs
Total members
of SMSFs
Mar-12 9,877 619 9,258 467,868 890,102
Jun-12 11,668 5,112 6,556 474,424 901,223
Sep-12 11,536 1,450 10,086 484,510 924,030
Dec-12 9,899 604 9,295 493,805 940,595
Mar-13 8,586 724 7,862 501,667 954,581
Jun-13 9,493 4,875 4,618 506,285 962,263
Sep-13 9,251 769 8,482 514,767 982,095
Dec-13 7,860 300 7,560 522,327 995,591
Mar-14 6,590 216 6,374 528,701 1,006,975
Source: ATO
Things to consider:Things to consider:Things to consider:Things to consider:
• Does it suit your personality, skills, and desire for involvement
• Cost vs Benefit
• These are not necessarily monetary considerations
SMSF FundamentalsSMSF FundamentalsSMSF FundamentalsSMSF Fundamentals
• Every member must be a trustee and every trustee must be a member
• Maximum of 4 members
• Corporate trustee strongly recommended
• All trustees must be eligible (e.g. not bankrupt)
• Make sure your deed is compliant
• Understand your obligations
• ATO regulates and oversees SMSF
SMSF Set Up StepsSMSF Set Up StepsSMSF Set Up StepsSMSF Set Up Steps
• Order Deed and Company (if using corporate trustee)
• Apply for ABN & TFN
• Set up bank account
• Rollover funds from other Super accounts
• Develop an investment strategy
• Consider insurance requirements for members
Source: BUSSQ
SMSF Annual Ongoing CostsSMSF Annual Ongoing CostsSMSF Annual Ongoing CostsSMSF Annual Ongoing Costs
• ATO Supervisory Levy (currently $259)
• Financial Accounts and tax return (approximately $1500)
• Compulsory Audit (approximately $450)
• Actuary Fee (if in pension mode, approximately $170)
• ASIC Company Fee (only for corporate trustees – currently $45)
• Financial Advice costs ?
Industry Fund Performance SnapshotIndustry Fund Performance SnapshotIndustry Fund Performance SnapshotIndustry Fund Performance Snapshot
Investment Performance Summary to 30 June 2014
for Income Accounts
Diversified options
Quarter 1 Year 3 Years 5 Years 7 Years 10 Years
Conservative
Net return 1.7% 8.7% 7.6% 8.1% 5.8% 7.2%
Retirement
Net return 2.0% 11.1% 8.4% 8.4% 4.5% 7.0%
Balanced
Net return 2.5% 14.8% 10.3% 10.5% 4.5% 7.8%
Balanced-Index
Net return 2.6% 13.7% 11.2% n/a n/a n/a
Growth
Net return 2.5% 15.6% 10.6% 10.6% 3.2% 7.4%
What Can SMSF’s Invest In?What Can SMSF’s Invest In?What Can SMSF’s Invest In?What Can SMSF’s Invest In?
• Direct Shares (Domestic and International)
• Managed Funds
• ETF’s
• Listed Property (Property Trusts)
• Direct Property (Commercial & Residential)
• Can borrow to purchase assets if done correctly
Example ScenarioExample ScenarioExample ScenarioExample Scenario
• Husband & Wife members & individual trustees
• One active decision maker, one silent participant
• Poor investment decision, results in loss of bulk of fund balance
• ATO seeks payment of unpaid tax debt
• No safety in defence of being unaware
Know The Rules!Know The Rules!Know The Rules!Know The Rules!
• Borrowing is restricted and must be set up properly
• Members cannot use Super Fund assets (e.g. holiday unit at coast)
• Understand in-house assets (Investing in related parties)
• New ATO penalty regime in place – substantial fines
• Responsibility to act in the best interests of members
InsuranceInsuranceInsuranceInsurance
• SMSF trustees have an obligation to consider whether they need to provide insurance for members as of 7th August 2012
• New rules from 1 July 2014 about what insurance can be held inside superannuation
• Trauma and ‘own occupation’ TPD no longer allowed
• Should you hold insurance inside or outside of super?
• Consider tax implications of each strategy
PensionsPensionsPensionsPensions
• Tax friendly on earnings
• Potentially tax free withdrawals
• Access to franking credit refunds
• Multiple pensions
• Easy to stop and start
• Ability to choose asset exposure and risk level
Estate PlanningEstate PlanningEstate PlanningEstate Planning
• Death nominations
• Reversionary pensions
• Replacement of trustees
• Discretion of trustee
Big Super: Access to InformationBig Super: Access to InformationBig Super: Access to InformationBig Super: Access to Information
Member Online
• Keep track of your super, on your time.
• Member Online is a safe and easy way to keep track of your super account.
• Open 24/7 you can access your account whenever it is convenient for you.
• Member Online allows you to: Check your account balance, monitor transactions made on your account
SMSF’s: …enter, “The Cloud”SMSF’s: …enter, “The Cloud”SMSF’s: …enter, “The Cloud”SMSF’s: …enter, “The Cloud”
• Security – we own the data
• Bank – transactions automatically downloaded
• Document Management – created and stored in an online portal
• Share Data – direct from provider to admin software
• Reporting – real-time access to customisable reports
• Access – customised access for members and their advisors
Finally…Finally…Finally…Finally…
• Consider the costs to establish and maintain
• Understand your responsibilities as a trustee
• Do you want to be in control of your own destiny?
• Can I perform better than the big funds?
• Weigh up the advantage of flexibility to choose your own assets
• Get good advice
• Get involved – be engaged in the process
• Plan ahead for your retirement (start early)
ATO PublicationsATO PublicationsATO PublicationsATO Publications
• http://www.yoursupersolutions.com.au/pdf/yoursuperbutnotyet.pdf
• https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/SMSF-resources/Self-managed-super-fund-videos/
• https://www.ato.gov.au/Super/Self-managed-super-funds/Thinking-about-self-managed-super/