Taking Control of your Retirement Savings

In Australia, saving for retirement is compulsory for employees through Australia’s superannuation system. Employers are required by law to contribute a minimum of 9% of an employee’s ordinary time earnings (not including overtime) to an eligible superannuation fund for the purpose of providing benefits to the employee in retirement. These compulsory contributions are called Superannuation Guarantee (SG) contributions. Employees can also make extra personal contributions to their fund.

Tax advantages of superannuation

To encourage all Australians to save for retirement, the government has made superannuation one of the most tax effective savings vehicles available. For example, investment earnings within superannuation are taxed at a maximum of 15%, instead of the investor’s marginal tax rate (which could be as high as 45%). Also, employees can choose to sacrifice a portion of their gross wage into superannuation which helps to boost their super and reduces the employee’s taxable income. These are known as salary sacrifice contributions. Other generous tax advantages are also available depending on individual circumstances.

Choice of superannuation funds

Most employees can choose a retail or industry superannuation fund for their employer to contribute to on their behalf. And for government employees, there are a number of public sector schemes.

Generally, these funds offer members some degree of investment choice through various investment options. These range from conservative options, holding a majority of cash and fixed interest, through to growth options investing in equities or other growth assets. These options are invested by fund managers with members having no involvement in the investment process.

For those wanting to take a more active role in the investment and management of their superannuation however, there is another option – self managed superannuation.

Popularity of self managed super

Managing superannuation savings through self managed superannuation (also known as SMSFs) is becoming increasingly popular in Australia.

At 30 June 2009, of the $1.08 trillion in superannuation in Australia, self managed super funds accounted for 30.9 percent of total assets, followed by retail funds with 28.4 percent, industry funds with 17.7 percent, public sector funds at 14.1 percent and corporate and other small funds at 5.3 percent¹.

Why choose self managed super?

For many people saving for retirement, self managed super funds offer many advantages. Most importantly, SMSFs offer greater flexibility and control over investments than retail or industry funds, and depending on the fund’s value, can often be more cost effective in terms of fees.

Greater control over your investments

With control over your fund’s investment portfolio, you can choose to invest directly in a portfolio of shares, bonds, residential property or other alternative assets. And unlike other superannuation types, you can actively manage your portfolio, choosing when to buy and sell assets within

your fund.

While the investment opportunities are greater within a self managed super fund, there are certain regulations that must be adhered to for the fund to retain the tax concessions available through superannuation. These include the sole purpose test which requires the fund be used for the sole purpose of providing retirement benefits for members and the in-house assets rule which specifies that not more than 5% of the fund’s total assets be associated with a related party of the fund. An example of an in-house asset includes investments in a company associated with one or more fund members.

Who can set up a self managed super fund?

Whether you are an employee, self employed, a business owner or a retiree, you can establish a self managed super fund. Funds can have from one to four members, with each member also being a trustee of the fund. Alternatively, if the trustee is a company, each member must also be a director of the trustee company.

Another requirement is that no fund member can be employed by another member unless they are related, making SMSFs particularly popular with family groups.

It is generally regarded that to establish a cost effective fund, the total fund assets should be more than $100,000.

Getting help with your self managed super fund

With the rules and regulation applying to self managed super funds, many fund trustees seek the services of professionals to help them with the paperwork involved in establishing and maintaining their fund. While some accountants help clients with paperwork and auditing, specialist advisory firms, such as Dixon Advisory, offer a holistic service encompassing all aspects of self managed super including managing all paperwork, providing comprehensive technical and investment advice and portfolio construction.

Before deciding whether self managed super is right for you, you should seek professional expert advice.

Information supplied by:

Dixon Advisory

Phone: +61 1300 732 607

Website: www.dixon.com.au