Self managing needs homework
SELF managed super funds (SMSF's) have become the flavour of the month. Sadly, like all such flavours, they are going to leave a very sour taste in the mouths of those who jump in without doing their homework.
It's easy to see how it happened. Markets crashed due to the global financial crisis, and the general reaction was "I could do better myself".
It got worse when the rules on super fund borrowing were relaxed, and super funds became able to set up structures which allowed them to borrow for investment in some situations.
The situation has become so bad that ASIC has become involved, warning that it will be targeting SMSF trustees and their advisers in a campaign which has the aim of improving the integrity of this $420 billion sector.
But it's not just theft and fraud that are perils for those who try to do it on their own - as well as the exorbitant fees being charged by some accountants, there are the penalties being levied by the ATO for breaches of the rules.
Recently I spoke to a person who had miscalculated the minimum amount that was required to be drawn before June 30. It was a simple error, and very easy to make, but unless the tax department moves to a more lenient attitude, his whole fund may lose its tax free status for last year.
The complexity of the regulations means that most trustees have no chance of doing the work themselves, and so have to rely on accountants or firms that specialise in super fund administration. Ongoing costs vary widely but Jenny Power of Superannuation Services Pty Ltd, who administers my own SMSF, tells me that $2500 - $3000 per annum is a reasonable figure. This includes administration, compliance, audit, review, and technical advice.
Because of the level of ongoing fees it is generally understood that $250,000 is the minimum amount you should have in super before you set up your fund.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: email@example.com.