By Noel Whittaker – April 2018
SELF-MANAGED SUPER FUNDS appear to be one of the main targets of Labor’s attack on the refund of franking credits.
As I have said previously, it is easy to get around the proposed changes in the rules – all you need to do is cash in the Australian share component of your self-managed fund and transfer that amount into a retail or industry fund choosing the “Australian shares” component.
It may even be time to roll your entire self-managed fund into a retail or industry fund.
So, let’s consider the question of whether you should keep running a self-managed fund at all.
Certainly, having your own fund provides extra flexibility, enabling you to invest in a much wider range of assets, such as direct shares, unlisted international funds and property syndicates. But I can state unequivocally that many people running their own funds would be better off having one of the big funds do it because it’s not as simple as it sounds.
It involves three major jobs: administration (doing the paperwork ), investment (deciding where to place the money) and insurance (arranging appropriate cover your way, but there are five major factors that should influence your decision.
- The fund must have assets of at least $200,000 or the set-up costs and annual expenses are almost certainly not worth the exercise.
- Your work situation must make it practicable. If you work for a major company you may not be allowed to transfer your balance in the employer’s fund to your own. If your main fund is a defined benefits fund, it would be impossible to transfer your balance.
- You must have the time and skills to handle administration, investment and insurance. This need not be a difficult job if you hire good people to do the work. Your accountant could do all the book work and, if your self-managed fund invests mainly in managed funds, such as share trusts, you and your your adviser could decide which funds to use.
- You must be the type of person who understands the people who run small businesses, but work so hard they ignore or forget about statutory requirements, such as having meetings and keeping detailed records. If you are like this, and want to run your own superannuation fund, contact a company that specialises in administering self-managed funds to do it all for you.
- You must have a plan for what happens if the person running the fund becomes incapacitated. If the fund members are a couple, typically one person does all the work. Of course, this can cause enormous problems if the person who handles the fund becomes ill or otherwise incapacitated.
In summary, you should not start your own fund just because the share market is down and you think “I could do better myself”. Taking control of the investment decisions for your life savings is a massive responsibility and making mistakes with your own money, while you are learning, could cripple you financially. To run your own fund you need to have a good track record with investing and be able to take care of all the other aspects outlined in this article.
Noel Whittaker is the Author of Making Money Made Simple and other books on personal finance. Noel’s advice is general in nature and you should seek your own professional advice before making any financial decisions.