Power Trish - DIY Super For Dummies

If your existing super fund doesn’t meet your retirement planning needs, then you can decide to set up a DIY super fund, or you can choose between one of the managed super fund options (see Chapter 2).

You don’t have to be an expert in super or a guru in investing (although experienced investors survive much better in the investment jungle) or be particularly fond of paperwork to run your own super fund. What you do need to possess is the motivation to build your super savings and to take responsibility for running your super fund according to the super, tax and investment rules.

Setting up a DIY super fund is a relatively straightforward process (which I step you through in Chapter 7), but you need to get it right from the start. Many advisers and some financial services organisations can set up your DIY super fund for you, for a fee. Other licensed advisers are likely to suggest alternatives to DIY super, such as choosing a ‘super wrap’. For an additional fee, a super wrap is designed to give you the investment flexibility of a DIY super fund without the legal responsibility of being a trustee. Using a super wrap is one option (see Chapter 2), but this alternative can be expensive, and most wraps limit the types of investments that you can invest in with your super money.

If leaving your super in someone else’s hands isn’t your idea of looking after your retirement savings, you can set up a DIY super fund. The decision to run your own super fund depends on

✔ How important it is for you to control your retirement savings (see Parts IIIand Vin this book) and control how your super is invested (see Part IV).

✔ Whether you have particular tax planning needs (see Chapters 13, 18, 19, and 24).

✔ How much time you have available to devote to your super fund (see Parts IIIand IV).

✔ How willing you are to get on top of the superannuation laws (see Chapters 9, 11and 15).

✔ How much your fund costs you to run (see Chapter 6).

All funds, irrespective of type, must comply with the Superannuation Industry (Supervision) Act 1993 (SIS Act), including accepting contributions, investing the money on members’ behalf, paying contribution and investment taxes, lodging annual returns and sending out member statements.

Doing a number on SMSF trustees

Every trustee of a DIY super fund (self-managed super fund – SMSF) is unique but, if you’re over 55 and live in New South Wales or Victoria, you’re more likely than other Australians to run a SMSF, according to ATO statistics. Nearly two-thirds (62.9 per cent) of all SMSFs are based in Victoria and New South Wales, and more than half (57.8 per cent) of all SMSF members are aged 55 or over.

If you’re under the age of 25 and live in Tasmania or the Northern Territory, then you’re the least likely to run a SMSF, with a mere 1.3 per cent of SMSF members falling into the under-25 category and only 1.4 per cent (around 7,478) of SMSFs being based in Tasmania, and 0.2 per cent (1,068) in Northern Territory, according to the ATO.

Queenslanders, however, control a healthy 16.4 per cent (around 88,605) of all SMSFs, and Western Australians run just over 10 per cent (around 55,020) of the 534,176 SMSFs in Australia as at June 2014. South Australia isn’t far behind, with 7.0 per cent of all SMSFs (around 37,392) being based in South Australia.

Just under 82 per cent of SMSF trustees (that is, more than 827,000 people) are at least 45 years old, with a quarter of SMSF trustees aged 65 or over.

For those curious about the gender balance within SMSFs, females are only slightly outnumbered by men – 52.8 per cent of SMSF trustees are men, and 47.2 per cent are women, which generally reflects that many couples start a SMSF together.

Source: Extract from article ‘Do you fit the profile of a “typical” SMSF trustee?’, originally published on my website, www.superguide.com.au . Copyright Trish Power. Reproduced with permission .

You can take my DIY Super 6C Challenge (see the next section in this chapter) to help you decide if a DIY super fund is right for you.Doing a number on SMSF trustees

Confidence and trust in your own abilities, particularly with financial matters, isn’t something you necessarily learn at school, and luck decides whether you learnt these qualities as a young person at home.

For most Australians, confidence in money matters is a lifelong journey that can begin as early as when you start getting pocket money (if any), or when you start your first job, or apply for your first credit card. Perhaps your real lessons with money started when you first lived independently and paid rent, or when you took on a mortgage, or started paying school fees.

Regardless of when you began your financial literacy journey, considering taking full control of your retirement savings is a mature and impressive approach that can potentially catapult you to the top of the class in financial literacy.

Before I congratulate you on reaching such a level of financial acumen, I must warn you: Just because you can, doesn’t mean you should. The key question you need to ask yourself is:

Am I suited to running my own super fund?

I have created a checklist, what I call my DIY Super 6C Challenge , to help you decide whether a DIY super fund (or SMSF) is the ‘right fit’ for you, and for your retirement planning needs. In simple terms, I believe six factors all starting with the letter C, determine whether you have the opportunity, means, skills and inclination to drive your own super future:

✔ Can you?

✔ Control

✔ Cost

✔ Competence

✔ Compliance

✔ Commitment

Are you ready for the DIY Super 6C Challenge? If you already have a DIY super fund, the question I ask remains basically the same: Are you ready to find out whether you’re up to the DIY Super 6C Challenge?

What a silly question; you may be thinking: ‘Anyone can set up a self-managed super fund (SMSF), can’t they?’

Strictly speaking, yes, anyone can set up a SMSF. If you’re self-employed, or not employed, you can choose any super fund that you like, including a SMSF.

If you’re an employee, and you have fund choice – that is, you have the right to choose the super fund where your employer pays your Superannuation Guarantee (SG) contributions (see Chapter 4for information on SG) – you can choose between having your SG paid into a super fund that’s managed for you, or running your own super fund. I explain how to arrange your employer’s SG contributions to be paid into your SMSF in Chapter 7.

And, if you don’t have fund choice – that is, you don’t have the right to choose your own super fund for SG contributions – you can still set up a SMSF, though you can arrange for only your own super contributions to be paid into your SMSF. You may also have the opportunity to transfer existing super benefits to your SMSF (also in Chapter 7).

A quick way to find out whether you have fund choice is to ask your employer. Alternatively, you can check out information about ‘choosing a super fund’ under the Super tab of the Australian Taxation Office (ATO) website ( www.ato.gov.au/super). I also explain fund choice in Chapter 2, and on my website, SuperGuide ( www.superguide.com.au).

If you’re considered a disqualified person (see the sidebar ‘Your history may close the door to SMSF’ later in the chapter’), you can’t become a superannuation trustee, which then precludes you from running a SMSF. In Chapter 8, I explain who can and can’t become a SMSF trustee.