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Should you DIY Super?
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| Gillian Bullock looks at the pros and cons of DIY super funds.
The number of self-managed super funds is growing at around 1800 a month and the number of DIY funds now in existence in Australia tops 308,000. But just how wise is it to set up such a fund?
In total, self-managed super funds (SMSFs) hold some $165 billion in assets and as such outrank both public sector and industry and corporate funds.
There are 580,000 SMSF members in Australia with a typical member being between 35 and 59 years old.
Interestingly, SMSFs tend to invest conservatively. According to Raelene Vivian, Deputy Commissioner of Taxation, 30 percent of SMSF investments are generally in the form of cash or term deposits and 21 percent in listed shares and equities. In contrast, offshore investments remain consistently below the one percent mark.
The average assets per member is much higher than in other super funds, weighing in at $250,000 compared with $40,000 per member for public sector funds.
But there are still concerns that people are setting up SMSFs with too few assets. It is suggested that if you have less than $200,000 in assets, then the costs associated with running a fund become prohibitive.
As Andrew Lawless of MLC technical services says, "It comes down to fixed costs — you have the establishment, legal, ongoing administration, investment and audit costs so an SMSF with less than $200,000 will be less cost effective than a public offer fund."
In addition, Michael D'Ascenzo, Commissioner of Taxation, questions whether people are up to the task of being trustees of an SMSF.
"The Tax Office has on a number of occasions emphasised the need for people considering establishing an SMSF to think long and hard about their ability to take on the role of trustee," said D'Ascenzo at the recent annual conference of the SMSF Professionals' Association of Australia (SPAA). "Trustees have to ask themselves whether they have the time and skills to manage their own superannuation fund."
D'Ascenzo says there are four questions you need to consider when deciding whether to establish your own fund:
Is the fund for retirement benefits only?
Do you have the time and skills to manage the fund?
Will the benefits be worth the costs? And
How will switching to a self-managed fund affect your current super benefits such as life or other important insurances?
Other concerns for the Tax Office are the many areas where existing funds do not comply with the SIS Act which governs funds. D'Ascenzo lists a number of these issues including breaching the in-house asset rules, acquisition of assets from related parties, personal use of assets, ownership of assets, links to small businesses, residency, trustees and auditors.
For instance, when it comes to in-house asset rules, trustees need to ensure that the value of such assets does not exceed five percent of the total assets of the fund.
With acquisition of assets from related parties, the ATO expresses concern at the number of trustees who still believe they can acquire residential properties from members for the fund.
The personal use of assets is another issue, where assets used to provide for retirement are in fact delivering a present day benefit. Another area of concern is where auditors only review one or two funds a year.
D'Ascenzo says an analysis of 9600 approved auditors found that 40 percent review just one fund a year and 30 percent only two to five funds.
"This becomes a challenge when an approved auditor only does one audit a year as to how to make sure they have the necessary skills and knowledge of the SIS Act to conduct an effective SMSF audit." |
| Category:
DIY Superannuation |
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