Superannuation Fund

The self managed superannuation fund (SMSF) is a way that people in Perth and beyond can save for retirement. When employers make contributions into your super, you can choose to have them put it in their corporate fund, an industry fund, a retail fund or an SMSF. There are many factors to consider, such as risk, reward, fees and insurance.

Remember that this information is general in nature. We can’t really make any specific recommendations without an individual consult to fully understand your financial situation first. We would like to give you an overview of SMSFs to help you decide if you would like to know more about them.

Factors to Consider

An SMSF isn’t for everyone. There are some factors you need to consider. According to the Australian Taxation Office (ATO), you may need as much as $200,000 to set up a viable SMSF. In addition, you will need to be a trustee. That involves a lot of time and responsibility.

You will need to submit reports on deadline, constantly monitor your investment strategy, keep abreast of all changes in SMSF regulations and keep a keen eye on the market for investment opportunities. You will also need to choose someone such as Approved Financial Planners to set up your SMSF.

Many Perth financial planners like managed funds because they offer diversification. They are a large part of many investment strategies. At Approved Financial Planners, we recommend any of a number of investments, using criteria such as your risk tolerance and financial goals as determining factors.

In another of a continuing series of posts in which we provide basic information for investors in accordance with ASIC and their MoneySmart website, we would like to demonstrate for you how ASIC views managed funds. Remember that we don’t give any specific advice on this blog, nor should anything in this piece be interpreted as individual advice.

What are Managed Funds?

Managed funds fall under the category of “managed investment schemes.” Your money is placed into a fund with that of other investors. An investment manager uses those funds to make investments on your behalf. This usually involves buying and/or selling shares and/or other assets.*

The funds usually yield periodic income, called “distributions.” The value of your investment is linked to that of the underlying assets. The investment manager is often referred to as the “responsible entity” or “fund manager.”*

At Approved Financial Planners, we provide superannuation and self managed superannuation advice to our clients in the Perth area. We would like to present a short beginner’s guide to understanding superannuation. We have gone to the Government’s website, https://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works, to gather some basic information that you may find helpful in understanding superannuation.*

What is Superannuation?

Superannuation is a process in which your employer currently pays 9.5% of your salary into a fund earmarked for your retirement. By 2025, this contribution would have increased to 12%. You are allowed to pay your own money into your super fund account to increase the fund. Money gained from super fund investments is usually taxed at a lower rate than the same investments made outside of your super.*

Choosing a Super Fund

Your money is usually invested into a super fund of your choosing. However, some employers decide where your funds will be invested. If you want to decide where your super fund will be invested, you must fill out a form from the Australian Taxation Office (ATO). It is called a “Standard Choice Form.”*

Considering how many qualified financial advisors there are in Perth alone, it is distressing to many of us to learn that a lot of people are using online self managed superannuation fund (SMSF) services.

It sounds great on the surface: appeal to your ego and tell you that you are capable of outperforming qualified financial planning professionals by simply visiting a website and establishing your own SMSF in a few clicks. We are sorry, but any financial advisor in Perth will tell you that it simply doesn’t work that way.

In the interest of full disclosure, we will mention that our parent company, AMP, offers five different SMSF products, with myriad variations to serve any need. We should also mention that we can’t give individual advice without talking to you and gathering enough information to provide that advice. However, we can tell you why online SMSFs are so risky and we can provide general information.

Individual Advice from a Professional

Online SMSFs may work for some people. Unfortunately, everyone’s needs are different. The reason we can’t give individual advice in a blog is the very reason that online SMSFs are so dangerous: they are a “one size fits all product” being marketed to people who all have different needs.

Competent, professional financial planning has just become more important for our Perth clients and across Australia. The recent decision by the Government to freeze employers’ contributions to superannuation funds until 2021 is going to cost the average worker a lot of money. Most of all, though, it is going to reduce the “margin for error” that Australians had for managing their super investments.

The current compulsory contribution by employers is 9.5%. It was scheduled to rise to 12% in 2019-20 via yearly increases. Now, it is scheduled to stay at 9.5% until 2021, when it will be raised 0.5% to 10%. Then, it will continue to rise 0.5% each year until it finally reaches 12% in 2025.*

According to John Brogden, chief of Financial Services Council, the freeze will cost Australians $128 billion in superannuation contributions. In other words, Australians will have $128 billion less to retire on than they would have without the freeze.

What it Means to You

First of all, we can’t give advice on a blog because everyone’s situation is different. Consequently, what we are going to say will be general in nature and can’t be interpreted as individual advice.