We have been hearing a lot about self-managed super funds and we feel that this approach may suit us but we’re worried about the administration required. Would you please tell us what’s involved?
Anthony and Tia – Mosman Park
A lot of people enjoy running their own self-managed super fund (SMSF) because it allows them the freedom and control that they desire with their own retirement funds.
For others though, it can be a burden that they simply don’t need. It’s important then to understand what’s involved before deciding if this approach is actually right for you.
Having your own SMSF means you, as trustee, have responsibility of the compliance and administrative work, the same responsibility as any large super fund.
The first step involves setting up the trust deed correctly, which is essentially the rule book that governs how your SMSF will run. As your trust deed is a legal document, you’ll need to have someone qualified prepare this for you.
The next important step is to create your fund’s investment strategy, which you must do before you can start investing. An investment strategy is the framework for how you will invest your money.
While each SMSF’s investment strategy will be different, all must have the same underlying goal, which is to increase the value of the member’s benefits. Your investment strategy needs to be reviewed each year, to ensure it remains appropriate for you and that all your investments comply with superannuation law.
This can be quite an onerous process as you, as the trustee, must keep up-to-date with all the changes to superannuation and then apply any changes to your fund’s strategy.
However, it’s the ongoing administration of an SMSF after this point that many people find more onerous and at times quite complex.
Preparation of minutes, managing ongoing paperwork, lodging income tax and regulatory returns, arranging an annual audit, monitoring your investment strategy, ATO reporting obligations – the list goes on and on.
And the work required is not just a once-a-year thing, like your annual tax return. Running an SMSF takes discipline and organisation throughout the whole year. Even highly-qualified people find managing an SMSF difficult, with some realising it’s actually the last thing they want to be doing in retirement.
That’s why, if you have any doubts about the administration involved, delegate the work to a professional or keep your super in a larger retail or industry fund, where all this work is done for you.