self managed super fund (SMSF) could be an effective way to manage your retirement savings, but while there are many benefits to establishing an SMSF, there are also a number of considerations to be aware of when making your decision.

8 key considerations for SMSF trustees

1. Be prepared to take an active interest in your super

People wanting to operate an SMSF must be looking for a greater level of control to optimise their retirement wealth. They must also be confident in making appropriate investment decisions in the best interests of their fund. As a trustee, you need to invest time managing your SMSF. While this does not mean doing it all alone, you will be the person in control and responsible for its operation.

2. You will have legal and administrative responsibilities for your SMSF

Trustees are responsible for the administration, compliance, development and maintenance of an investment strategy for their SMSF and in all cases must adhere to strict rules. Failure to meet your obligations under super and tax laws could result in financial penalties personally, or disqualification as a trustee. If you don’t feel comfortable managing these requirements yourself, it’s important to seek specialist advice and support; however, as trustee you are ultimately responsible for the operation and compliance of your SMSF. To ensure you have an adequate understanding of SMSF obligations that apply to you, we encourage you to complete one of the online approved education courses by the Australian Taxation Office (ATO).

3. You should have an appropriate minimum balance to operate your SMSF

For SMSFs to be cost-effective, generally you need a starting balance of at least $300,000 and an expectation that the fund will continue to grow. In addition to establishment costs, including a trust deed and creation of a company to act as a corporate trustee (if applicable), some of the ongoing costs associated with running an SMSF include an annual tax return and independent audit, ATO fees and investment fees. You can also choose to pay for professional SMSF support services to help with the management and compliance of your fund.

4. You must seek advice if you are planning to live overseas for an extended period

To establish and manage an SMSF you need to be an Australian resident. If you expect to reside overseas for extended periods (one to two years or more), it is best to seek professional advice. The ATO has strict rules and regulations regarding extended leave from Australia, and if you do not follow the guidelines implicitly, your SMSF could be deemed non-compliant and incur heavy penalties.

5. Consider holding insurance cover within your existing super fund

SMSF trustees are required to consider whether to hold insurance for each member of the SMSF. If you are considering switching to an SMSF, it is also important to consider any existing insurances before rolling over or closing any of your superannuation funds. If you are looking to replace your existing insurance cover, you will need to consider the costs and benefits. We recommend you seek personal insurance advice in relation to any potential implications of rolling over any existing superannuation and setting up a SMSF.

6. You will need to be aware of compensation, complaints, and dispute resolution mechanisms

Disputes and complaints may arise during the time you manage your SMSF. Although SMSF trustees do not have access to the Superannuation Complaints Tribunal (SCT), they may be able to access the Financial Ombudsman Service (FOS) and the Credit and Investment Ombudsman (CIO) for independent dispute resolution services, providing the adviser is a member of the FOS or CIO.

Unlike industry and retail super funds, which are subject to regulations from the Australian Prudential Regulation Authority (APRA), SMSFs are not subject to the same government protections. This means that in the event of theft or fraud resulting in financial loss, SMSF members cannot apply for compensation through the Federal Government’s financial assistance program.

7. The structure of your SMSF is your decision

If you decide to establish an SMSF, you will need to choose between setting up a corporate trustee or using an individual trustee. You should speak to a professional adviser about the benefits and limitations of both structures and what is most appropriate for you.

8. You are responsible for devising an exit strategy if you close your SMSF

At some point you may want or need to wind up your SMSF. As trustee, it is important to have considered and developed an exit strategy to help make this process as simple as possible and to be aware of the costs involved with ending your fund. For example, an exit strategy may be required where your SMSF ceases to be cost-effective due to increasing costs and/or decreasing fund balance. You should always seek personal financial advice when considering winding up your SMSF.

Let us help you assess if an SMSF is right for you

At E&P, our SMSF Accounting team support trustees of SMSFs with preparing financial statements and tax returns, coordinating the annual audit and actuarial certificates, commencing and maintaining pension accounts and liaising with the ATO and ASIC.

If you’re considering and SMSF and looking for accounting and administration support, E&P may be able to help you.

Contact us to find out more about our SMSF Accounting service.