Superannuation is boring

By Alex Denham

And so are brussels sprouts. Until you add butter and bacon and onion and herbs and fry it all up and suddenly they are utterly delicious, and far from boring.

So how do we turn superannuation into brussel sprouts? Figures released by the Australian Prudential Regulation Authority (APRA) recently indicate that more and more Australians are turning to self-managed super funds (SMSFs) to spice up their superannuation savings.

What’s the difference between a SMSF and my current employer fund or industry fund?

As the name suggests, a SMSF is your own, private super fund with no more than 4 members, where you and the other members are the Trustees of the fund. As such, you call the shots in terms of the investments (within the relevant superannuation laws). This appeals to many as they get disillusioned by the performance of the fund they are in versus the fees they are paying, as well as the lack of say in, or understanding of, the fund investments.

Most employer funds offer their members their own choice of investment risk, for example: defensive, balanced, growth, high growth.  But they don’t all allow the members to select their own investments such as, direct shares, selected managed funds, or direct property.

SMSFs appeal to those that want more control, flexibility and involvement in their superannuation. Importantly, with this control comes more responsibility; as Trustee, you are responsible for the ongoing management of the fund.

As a SMSF Specialist AdviserTM, you might think that I’m spruiking SMSFs all over the place. Well, I’m not really. I’ve spent more time winding up SMSFs this year than I have recommending them. Why?  The three funds I wound up had a common thread: a sole, elderly, widowed member who had inherited the fund from their deceased spouse.

In this case, these women had very little experience with money matters, and whilst they were eager to learn about investments and managing their own affairs (and doing a great job of it), they had no interest in the responsibilities that come with being a Trustee and sole member of a SMSF. They could invest into their choice of investments (direct shares) using a Wrap platform without the added responsibilities that being a Trustee entails.

In my opinion, SMSFs certainly have their place, but they have been over sold in the past, often inappropriately. Who then, do I think would actually enjoy their super and engage in it if fried up with a bit of butter and bacon?

My ideal SMSF New Investor Profile

You are in your 40s or 50s and have worked most of your adult life, which means you’ve had around 20 years of Super Guarantee contributions going in to your fund. You may or may not have a spouse. Either way, you or, you and your spouse combined, have over $200,000 accumulated in super (the higher the balance the more cost effective the fund becomes in terms of administration costs).

You want to be involved and have control over the investment decisions of your growing superannuation asset, and understand that this comes with a time commitment and added responsibility.  This doesn’t mean you’re an expert in investing (or in superannuation) nor does it mean you’re doing it all yourself – you probably don’t have time to do that anyway, but you have a keen interest in learning and want to make informed decisions.

You seek a financial adviser that will coach you in investment and economic matters, and ensure that you are meeting your Trustee obligations. In the future, when you have more time on your hands and experience under your belt, you aim to be more self-directed on investment choices.

If it’s right for you, a SMSF gives you buy-in on what could end up being your largest asset. It serves to engage and educate you, equipping you for a life time of managing your finances and taking you into your retirement and beyond. Far from ignoring your boring old super, you will take an active interest in it, be incentivised to add to it, and in doing so could very well significantly improve the result for you and your family at retirement.

Brussels sprouts anyone? Pass the pepper…

Alex Denham (AR 400601), & Dartnall Advisers Pty Ltd (AR 299568) are Authorised Representatives of Magnitude Group Pty Ltd • ABN 54 086 266 202 • AFSL 221557 • 

General Advice Disclaimer: This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs.