There is no one correct answer as to whether a self-managed superannuation fund (SMSF) is the right structure for your retirement savings – to a certain extent it does come down to personal choice. There are, however, certain broad issues that you should consider before setting up a SMSF.
In 2012, the Australian Securities and Investments Commission (ASIC) set up an SMSF taskforce to look at risks in the SMSF sector. In April 2013 they published a report that summarised their findings. You can download the full report here.
Within the report, ASIC outlined a checklist of questions that would-be SMSF trustees should ask their financial adviser prior to making a decision. That checklist is summarised below:
Questions to ask your adviser…
Role and obligations of SMSF trustees:
- Does the investor adequately understand what it means to set up and run an SMSF?
- Does the investor understand the role and responsibilities associated with being a trustee of an SMSF? Do they understand the consequences of getting it wrong?
Suitability of an SMSF structure:
- Does the investor adequately understand the cost and time required to run an SMSF?
- Does the investor possess the financial literacy skills required to run, or be involved in running, an SMSF?
- Has the investor considered SMSF succession-planning issues? This may be an issue for older investors.
Risks of an SMSF structure:
- Does the investor understand the basic risks associated with having an SMSF? For example, does the investor understand:
- their inability to access a Government compensation scheme
- their reduced access to dispute resolution bodies
- the risk of not having insurance, or having inadequate insurance; and
- the risk of some SMSF membership structures?
- Does the investor have the necessary skills and expertise to make the investment decisions for the SMSF? If not, does the investor have a plan to outsource these skills (e.g. by getting professional investment advice)? Does the investor understand the costs of importing these skills?
- Does the investor understand the benefits of investment diversification and the risks associated with investing all their superannuation in a single asset class (e.g. real property)?
- Will the investor?s investment strategy deliver the returns required to adequately fund their retirement?
h2>Switching from an APRA-regulated superannuation fund:
- If the investor is moving from an APRA-regulated fund to an SMSF structure, do they understand the advantages and disadvantages of such a switch?
Alternatives to an SMSF structure:
- Are there alternatives to an SMSF structure that would meet the investor?s needs? If so, have these alternative structures been properly explained to the investor?
A SMSF can work very well for some investors – just ensure that you have done some research first and that you understand the responsibilities and risk – as well as the potential reward – involved.
Learn more about Super
- How much do I need to have/be earning to make getting an SMSF worth it?
- How does an SMSF work?
- How do I set up an SMSF?