So, you’re thinking seriously about setting up your own super fund. You’ve spoken to friends with DIY Super, got some advice from your accountant, and done your own research. Is there anything else you need to know? Here are some factors to take into consideration before you commit…
What is DIY Super?
Also known as a self-managed super fund (SMSF), it allows you complete control over your Super investments as a way of planning for your retirement. It performs the same role as a managed Superannuation fund, but in the case of DIY Super, the members are also the trustees – you control the investment decisions of your contributions. As trustees, you are also responsible to run your fund within the law and report to the Australian Tax Office.
The Key Considerations
DIY super has many advantages, and you have to decide whether it suits you. Make sure you think about:
- Whether you have the time, knowledge and skill to manage your own super fund
- If you have assets and money to make the fund viable
- How the costs and benefits of running a DIY Super fund compare with more mainstream retirement saving solutions
- That you fully understand what’s involved in managing your own fund from a legal and compliance perspective. After all, the buck will stop with you.
Research shows there are a variety of reasons why people go down the road of DIY Super. It would be easy to assume that lower fees are the main attraction, but the overwhelming reason is to take control and responsibility of your financial future.
It was for these reasons that Mark Howarth, owner of a successful software and managed services business, enthusiastically embraced DIY Super and established his own fund. And he understood that he needed to be very involved with it.
“I didn’t have the expertise required to make the short, long and strategic investment decision needed to run a DIY Super fund but was confident I could learn it.”
5 questions to ask before setting up a DIY Super fund
Before establishing a DIY Super fund, you should understand some of the challenges you could face:
1. Do you have enough in your fund?
Whether a fund will be viable will depend on the types and levels of investments that are made, and the plan to boost contributions in the future. Without the required level of assets and funds, then fees and contribution charges and professional advice could outweigh the performance of the fund.
2. Do you have the knowledge?
Trustees of DIY Super funds should have a strong understanding of the principles of sound investment if venturing into DIY Super.
As Howarth came to understand, “You have to have knowledge, expertise, systems, processes and time to maximise your return. That’s the goal -to maximise return because the value of the portfolio directly translates into dollars in your pocket in retirement.”
3. Do you have the time?
Operating your DIY Super fund is time-consuming. Even with the assistance of professionals, you will be required to devote time to investment decisions, reviewing strategy and meeting compliance requirements.
4. Do you have the staying power?
Many people set up DIY Super funds with high expectations and then run out of steam when the expertise requirements become too great or the funds have not performed to their desired level.
This was Howarth’s experience, “My aim was to benchmark my SMSF management against the best fund managers available. I learnt some valuable lessons in the process and decided to get some assistance from DIY Super experts. That extra level of support helped a lot.”
5. Do you know the penalties for non-compliance?
As regulator of DIY super, the Australian Tax Office can seriously sanction wayward funds for non-compliance through levers like highest marginal rate penalties, or removing a fund’s complying status. This could put a big dent into retirement savings, and could land you, as trustee, facing civil or criminal actions for serious breaches. So it’s essential you know your responsibilities and adhere to them.
Both Sides of the Story
The decision to manage your own superannuation should not be taken lightly. The duties and responsibilities should be fully understood. However, the rewards can be well worth the effort for many.
From Howarth’s perspective, “It’s been a learning curve, but I’m very happy with the balance of effort versus performance that I’m achieving now with my DIY Super fund.”
To get both sides of the DIY Super story, speak with your accountant, the Australian Tax Office, or the team at Commonwealth Bank. Click here.
The Australian Tax Office
Important Information: As this advice has been prepared without considering your objectives, financial situation or needs, you should, before acting on this advice, consider its appropriateness to your circumstances. As individual circumstances differ, you should seek professional advice. Commonwealth Bank of Australia ABN 48 123 123 124.