Noel Whittaker explains how self-managed super funds work.
Managing your own super provides the flexibility to invest in a much wider range of assets. However, as Noel Whittaker explains, there are four major factors that will influence your decision.
Should you stay with your employer’s superannuation fund, join a fund provided by one of the big life institutions, or start your own fund? Just appreciate that it is not as simple as it sounds and that there are three major tasks involved in running your own superannuation fund:
- administration (doing all the paperwork)
- investment (deciding where to place the money)
- insurance (arranging appropriate insurance for members).
This raises the question of who will do all this for you. Certainly, having your own fund provides extra flexibility by enabling you to invest in a much wider range of assets, such as direct shares, debentures, bank bills and property syndicates, but there are four major factors that will influence your decision:
1. The amount of assets the fund will hold. If it does not contain at least $200,000, the setting up costs and the annual expenses are probably not worth the exercise.
2. You must have an occupation that makes it practicable for you to do it. If you work for a major company you may not be allowed to transfer your balance in the employer’s fund to your own fund. And, if your main fund is a defined benefits fund, it would be impossible to transfer your balance because defined benefits funds don’t work like that.
Self-employed people, or those with large amounts rolled over, are best suited to start self-managed funds.
There is no point in having your own self-managed superannuation fund unless you are a “hands on” do it yourself investor. But even then you must consider what would happen if you die and your spouse was left with all the administration.
3. You must have the time and the skill to handle it. This need not be a difficult job if you hire good people to do the work. Your accountant, or super fund administrator, could do all of the all the book work, and if your self-managed fund invests mainly in managed funds, such as share trusts, you and your adviser could decide which funds to use.
4. You must be the type of person who understands the importance of carrying out your legal responsibilities. There are many decent people who run small businesses efficiently but work so hard at their business that they ignore or forget about statutory requirements, such as having meetings and keeping detailed records. If you are like this, and want to run your own superannuation fund, contact a company that specialises in administering self-managed funds to do it all for you. Your accountant or financial adviser will be able to recommend one.
In summary, a self-managed fund may be suitable for high net-worth individuals who want to run their own race and have the skills to do it. However, you should not start your own fund just because the share market is down generally and you believe “I could better myself”. Taking control of the investment decisions of your life savings is a massive responsibility, and making mistakes while learning with your own money could cripple you financially. To run your own fund you need to have a good track record with investing but, even then, you may need to consider what would happen if you became ill and could not make the decisions any more.
Noel Whittaker is the author of Superannuation Made Simple and numerous books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions.
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