Superannuation has dominated the headlines of late, mainly for the wrong reasons. Financial media outlets have been awash with sensationalised headlines describing super as a ‘bad investment’. This naturally has meant people have become suspicious of super as a method to invest. They no longer wish to make additional contributions to their fund and are looking at alternatives to invest their savings.

Allow me to dispel a myth – Superannuation alone is not an investment. Super is simply a separate structure, aside from investing in your personal name, to invest your money. People are encouraged to invest in super because it provides tax advantages to do so. Why? Because the Government wants us to accumulate in super so that we can be self sufficient in retirement. Of course the catch is we cannot touch our super until we reach preservation age, currently 55.

It is not superannuation as a whole that has disappointed in recent times, rather the performance of the investment fund managers that manage your individual super balances. You see in the main, superannuation funds are a collection of people’s balances that are pooled into various investment options and managed by a fund manager. The only input a person has is when they elect the investment option to have their super invested.

Pooled funds remain appropriate for those with smaller super balances, allowing them to invest in assets they would be otherwise unable to. But if you have a larger balance of around $200,000 + (this can be a combination of up to four individuals, or perhaps you and your spouse), there is another option.

Self managed superannuation funds (SMSF) give you the opportunity to create you’re own fund. As the trustee of the fund, you decide what your fund will invest in, such as direct shares or a residential property. This provides much greater control and flexibility over your super and the investments within the fund can be selected according your personal goals and objectives as your money is not combined with other investors.

There are costs involved to operate your own fund, hence why I suggest an investment balance of around $200,000+ is desired.

Sounds simple right? Not quite.
As trustee of a SMSF, you are responsible for ensuring your fund remains compliant, that is, it meets the regulations set out in the Superannuation Industry Supervision (SIS) Act, such as: meeting the sole purpose test, not exceeding contribution caps, meeting a condition of release before withdrawing funds, only investing in assets allowable under the Act and the list goes on. If only one of these rules is broken the fund could be rendered non-compliant and subject to penalty tax rates of 46.5%, as opposed to the concessional rate of 15%.

It is therefore important that you seek professional advice to ensure you are investing wisely and abiding the rules.

But with that said, a SMSF could well provide the control and flexibility you
have been looking for to design a tailored strategy specific to your needs.

Andrew is a Certified Financial Planner with Hewison & Associates
Wealth Management andrew@hewison.com.au
9682 1900