Self Managed Super Fund

Self Managed Super Funds (SMSFs) came into force in 1999 and now account for over 30 percent of all super assets under management. According to the Australian Taxation Office, in 2019 there were about 600,000 SMSFs holding around $747 billion in assets. This is significantly more than the $678 billion held at that time in industry funds and $628 billion held in retail funds. The number of SMSFs has grown at almost 5 percent annually and the assets by around 25 percent over the past 5 years. The demographics of SMSF holders are almost equally split between males and females.

What is a SMSF?

A SMSF is a superannuation trust structure. A SMSF provides benefits to its members upon retirement and the main difference between SMSFs and other super funds is that the members are also the trustees of the funds. This gives them control when it comes to tailoring the fund to meet their specific needs. The advantage of a SMSF is this level of control as well as the fact that ‘you’ manage the fund. In reality however, if you don’t have the time to monitor the investment market, you should consider using a professional adviser to do this for you.

The SMSF experienced high rates of growth in the period leading up to the GFC and recovered more quickly than retail and industry funds. So there is clearly a lot of interest in whether or not SMSFs will experience a similar outcome following the COVD-19 pandemic and its economic outcomes.

The current environment

When analysing the trends in investor behaviour following the GFC, two main patterns emerged and these are evident again amongst those individuals who do not need to access their super early for financial reasons.

1: Do nothing and hope it all goes away soon.
2: Take the losses as a wakeup call and become more engaged with your superannuation.

One of the other benefits of SMSF is that it can hold direct property as part of its portfolio. But has this helped during the current pandemic? All superannuation funds have had to deal with a range of issues during this crisis, the following are some of the issues related to SMSFs

  • Many SMSF trustees are small business owners. Due to loss of income some have sought early access to their super and this has been actioned quickly and funds received very quickly.
    Those SMSFs that hold direct property are being affected by loss of rental income and this is putting a stress on maintaining income levels in the funds. This is further complicated if a related business rents the commercial property owned by the fund.
  • What are the likely policy implications for SMSF when this is over and the Government is looking for ways to cover its rapidly rising debt? This will happen and investments and their returns can be a bit of a soft target.

The Federal Government introduced a number of strategies to help manage the losses during the pandemic 

  • Allowed a 50% reduction in the minimum requirement for pensions to enable those able to survive while drawing less income to preserve some of the invested capital. Those retirees that can afford to have taken up this option.
  • Concessions around the treatment of payments in excess of the minimum amounts as a cashing out of a superannuation lump sum. This is a complex area that needs to be done through proper documentation.

Some of the ‘COVID-19’ strategies SMSFs should consider to make sure they are on top of any current or upcoming changes include

  • Review your tolerance to risk. The economic situation has changed and it's more than likely you have too since you established the fund.
  • Reviewing the SMSF to ensure it still remains viable to continue to operate.
  • Have a plan for the continuation of the SMSF if one of the trustees gets ill or passes away – can the fund still run?
  • Review your investment strategy and then review it again. The economy is going to take a while to recover, so is the structure of your fund still the most appropriate for you?
  • Understand the ongoing expenses related to your fund. The income might decrease, but the expenses aren’t going anywhere.
  • Review the value of any in-house assets like loans to related parties or assets leased to related parties. These have a compliance limit that must be kept in check.
  • Keep talking to your financial adviser. It might actually be a good time to add to your portfolio.

The desire to be in control and having a degree of financial agility is why SMSFs became so popular. But like all things financial, SMSFs are not for everyone and they come with a number of entry requirements and ongoing compliance costs. If a SMSF didn’t seem like the right thing for you 6 months ago then jumping into one now may still not be the right thing. It may also no longer be the best superannuation vehicle for you. Seeking advice based on your current circumstances and long-term goals is always the best strategy.

Contact us today to speak to one of the friendly team at ActonAdviceGroup.