Superannuation is a subject that we hear of on an almost daily basis. The news is full of politicians and their scare tactics on changes to the superannuation legislation. Then there is ongoing discussion on the retirement age. This was always 65 but the previous government planned to increase the qualifying age for the age pension to 67, and the present government proposes to phase in an increase up to the age of 70, although not for a number of years.
We also hear debate on the benefits of industry funds over retail funds splashed across the TV. The benefits apparently are lower costs associated with industry funds. What comes to mind when we see these advertisements is who is paying for them? It seems to contradict the very message that the ads are trying to convey.
Then there are those who take the option to move away from both industry and retail funds and start their own Self Managed Superannuation Fund. The people who go down this path take responsibility for managing their own investments and retirement planning.
The decision as to whether to stay with the large funds or go the SMSF route is a personal one and there are a number of reasons you might opt for one over the other. For example, the larger funds are run by professional people who specialise in investing profitably and it may be that you decide that they have a background that you don’t have in the financial sector and this could be an attraction. Obviously there are fees payable from the earnings as these managers need to earn an income.
The attraction to the SMSF sector is being in control of the decisions made regarding where your money is invested, and possibly, the opportunity to invest in direct property, which the larger funds can’t do. The costs associated with this option would be those of producing financial statements and income tax returns as well as an annual audit. Typically accounting and audit fees would amount to about $2000 for the average fund, depending on complexity.
So, how to decide on which is for you? If we think that average management fees for industry/retail funds could be 1% then you would want to have at least $200,000 in your fund for the relative costs to be the same. Other reasons may be to buy your business premises, or an investment property. Before making a decision you may also want to make sure you are comfortable with the compliance requirements and trustee obligations.
Prior to making a decision get good advice from your accountant or financial planner so any decision is a well informed one.