SMSFs: Are they appropriate for young people?

SMSFs are changing the face of Australia’s retirement industry. It is the country’s fastest-growing sector of the superannuation system, comprising approximately a third of the two trilliondollar sector.

It is imperative you seek professional advice because, as a trustee of the fund, you are personally responsible for all investment decisions.

The Australian Tax Office’s (ATO) December 2014 annual statistical report on SMSFs revealed the median age of newly established SMSF members had fallen below 50 for the first time2. Historically, steep set-up fees and operating costs have been a barrier to those without considerable sums to invest. However, developments in technology are driving automation and more efficient processes that are lowering running costs, thus making SMSFs more accessible. Technology has also played a part in people becoming “more educated, more aware, and more interested in making their own decision knowing it’s for the long term,” according to SMSF Professionals’ Association of Australia Chief Executive Andrea Slattery3.

With greater control though, comes greater responsibility. A SMSF is a highly-regulated retirement strategy. Every fund requires between one and four members. Each member must be a trustee, or, if you appoint a corporate trustee, each member must be a director.
SMSFs exist only to provide members with retirement benefits, and they follow a strict investment strategy designed to meet the needs of those members. Regulatory bodies, including the ATO, maintain strict reporting requirements, so it is crucial that records and processes are accurate and up to date.

If you are considering establishing an SMSF, here are a few things to remember:

  • It is still wise to start with a lump sum substantial enough to make the fund worthwhile. A SMSF can be opened with as little as $50,000, but annual running costs can be around $2,500. This means the fund would need to earn around 5% per annum just to cover fees and charges.
  • Regulations stipulate that you engage qualified professionals to handle the accounts, tax, audit and legal aspects of the fund.
  • You will need both time and financial experience. It is recommended that you use a qualified financial adviser to help with administration and investment decisions.
  • Regulations require you to consider life insurance as part of the fund’s overall strategy. This includes income protection and total and permanent disability cover
    for all members of the fund.

In return for the effort required to establish a SMSF, there are a number of benefits. SMSFs offer greater levels of control than retail or industry super funds, and a wider range of investments and asset types available. You can also borrow to purchase shares or property, although strict rules must be followed. Tailoring a portfolio to suit your needs also
has the potential to yield a greater return compared with industry or retail funds.

It is important to do your own research if you are unsure whether or not a SMSF is suitable for you. As always, consult a professional adviser before making any important financial decisions.

Disclaimer: While every effort is made to provide accurate and complete information, Trilogy Funds does not warrant or represent that the information in this newsletter is free from errors or omissions or is suitable for your intended use. Subject to any terms implied by law and which cannot be excluded, Trilogy Funds accepts no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as a result of any error, omissions or misrepresentation in information. Note: All figures are in Australian dollars unless otherwise indicated. This information is issued by Trilogy Funds Management Limited (AFSL 261425) and provides general information only. Applications may only be accepted by completing the applicable application accompanying the relevant PDS It does not provide financial product advice nor is it an offer of securities. If you require personal advice on the suitability or other aspect of this investment, consult a licensed adviser, who will conduct an analysis based on your circumstances. Past performance is not a reliable indicator of future performance. Mortgage trusts are not bank deposits and are not government guarantees.