Recently I met a couple in Buderim on the Sunshine Coast. They had a Self Managed Super Fund (SMSF) but were concerned about the hassle and increasing costs of maintaining it. The couple were in their mid-70’s and I asked them why they established it in the first place
They said they were advised to establish a self-managed super fund by their accountant many years ago however they really didn’t know why they still had it. “It’s what we’ve done for a few decades now and don’t really know what other options are around”.
Why have a Self Managed Super Fund?
SMSF’s are complex. They are also expensive and time-consuming to manage. As you get older you’re more likely to want to simplify your life and reduce financial complexity, so it may not be appropriate to maintain your SMSF.
In my opinion, the only reason you’d really want to maintain an SMSF is if you own direct property. Other than direct property, you can own almost any asset in an ‘investment wrap account’, or an industry super fund.
Do the SMSF costs outweigh the benefits?
For many people, the cost of maintaining a self-managed super fund will outweigh the benefits. Take the couple in Buderim – they had $750,000 invested in their SMSF and they owned various managed funds.
Their accountancy fees were approximately $3,000 p.a. plus the various ATO costs, audits and so on were another $1000 p.a. Then the cost of the managed funds, averaging 1% p.a., that’s another $7,500 p.a. Plus, on top of this they were paying a financial planner on the Sunshine Coast a further ‘ongoing advice fee’ of 1%, p.a., another additional $7,500 p.a. Making the grand total cost a whopping $19,000 p.a.
Compare this to the cost of an industry fund or low-cost retail fund at say, 1% p.a. ($7,500 p.a.) then it does not make much sense to maintain the SMSF if it costs $11,500 p.a. more to manage. That’s not even factoring in the time it takes for you to maintain and manage the SMSF. So, why have the hassle and time-costs associated with the SMSF?
How to wrap up an SMSF – Self Managed Super Fund
It can be a fairly painstaking process to wind up an SMSF. Whilst many accountants and other advisers are experienced with establishing SMSF’s, in my opinion, many are not familiar with the process of winding up the SMSF. The steps in winding up a self-managed super fund include:
- Examine the Trust Deed to make sure you satisfy any requirements the Trust Deed contains for winding up the fund
- Selling down the investments within the SMSF and transferring the cash to the SMSF bank account
- Arranging a rollover benefits statement in order to roll the balance over to a new super fund
- Informing the ATO that the SMSF is being wound up (within 28 days)
- Having a final tax return completed for the fund
- Having a final audit of the fund
- Payout any final tax bills
- Close the SMSF bank account
- Cancel the ABN
What about Capital Gains Tax?
Most people I see winding up SMSF’s are retired. Therefore, they aren’t concerned about CGT implications as they are already in a nil tax environment, being retired and in pension phase. However, for younger people, CGT can be an issue when selling down investments in the SMSF.
Older people with Self Managed Super Funds are also not normally concerned with the loss of insurance in the SMSF. But again, this may be more of an issue for younger people that still have debts, dependents and so on.
If this is you then make sure you sort out your insurances prior to the insurance being lost when winding up your SMSF. Also, don’t forget, you will also need to make new death benefit nominations in your new fund as well.
Not sure if you should wrap up your Self Managed Super Fund SMSF?
The best advice is to get some advice from your local Sunshine Coast Financial advisor, Mike Beal. Mike is a financial planner based in Maroochydore but can also see you at your home. Whether you need a financial planner in Caloundra, Noosa, Buderim, or Kawana just give Mike Beal Financial Planning a call on 0409 799 279 or email: [email protected] He is your Sunshine Coast Financial Planning Expert.
Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.