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/

Thanks…Thanks…Thanks…Thanks…

Alan King

alan@cnspartners.com.au

www.cnspartners.com.au