Self-managed super as attractive now as ever
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Self-managed super fund trustees, and those considering the do-it-yourself route, may be reconsidering the viability of such arrangements because of changes to the tax treatment of concessional and non-concessional contributions.
If you have a superannuation balance of $200,000--or a realistic expectation of reaching this amount within a few years--it still makes sense to establish a self-managed super fund (SMSF), according to Graeme Colley, executive manager, SMSF technical and private wealth, SuperConcepts.
The certainty of the federal government's revised super contributions regulations doesn't change this.
"People may say that because of the drop in concessional contributions, that SMSFs are probably not as viable as they were. But what it has done is lengthened the investment horizon ... for those people that would be contributing $25,000 going forward [instead of $30,000 per year]," Colley says.
However, he emphasises that establishing and running an SMSF has the same pros and cons as ever.
"You've got flexibility, and a wide choice of investments ... you can diversify through the stock exchange with various listed investments, or corporate bonds, and also some other investments that may not be as volatile as stocks--you have that option to choose."
SMSF trustees getting younger?
Colley believes there has been some reduction in the average age of SMSF trustees, who are attracted by the potential tax advantages of saving money inside super versus other options.
Of all the new SMSFs established in the last quarter, just under 30 per cent of members were between 35 and 44 years old, and 32.5 per cent had members between the ages of 45 and 54, according to 2016 figures from the Australian Tax Office (ATO).
"You might think, well, I'm 25 now and can contribute a reasonable amount to super, the investments are still tax-favoured in super, so there is an advantage in doing that, saving through an SMSF rather than saving in your own name," Colley says.
"It's a bit of a play-off against the costs of running a fund versus the returns or overall tax benefits you get by putting money into that super fund."
Andrew Zbik, a financial planner with Omniwealth, says he has also observed a decline in the age of clients approaching him about establishing an SMSF.
What does it cost?
Zbik uses the example of a couple aged in their early 40s, with a combined SMSF balance of $600,000.
If invested in a high-growth investment portfolio, he estimates you will pay around $2,500 for accounting and audit fees, plus investment management (0.73 per cent) costs of $6,880.
Contrasting this with an industry superannuation fund, Zbik suggests a similar amount invested in a high-growth portfolio would cost around $4,500 in administration and investment costs.
"If the couple takes on all management responsibility of the SMSF and do not outsource the portfolio management to a professional, then the SMSF may be cheaper to operate, without factoring the time and risk of managing all of your own money," he says.
Colley suggests this fee range at the upper end of the spectrum, and emphasises there are other elements to consider--such as how much external assistance and input you require--which also affects the costs.
"It depends how much you want to get involved in it personally."
He refers generally to the customer base of SuperConcepts, with most of these SMSF trustees direct investors.
"Some have very big portfolios--some as high as $5 million--and many of those do their own investing, with returns of around 6 to 7 per cent per annum. With very strong portfolios that are nicely diversified, and they are also not paying for financial advice," he says--though he doesn't ignore the value of advice for many retail investors and SMSF trustees.
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Glenn Freeman is Morningstar's senior editor.
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