Going solo in super is a long-term financial decision. A DIY fund may be a feasible option for an individual if they satisfy the following criteria:
- More than $200,000 in super savings
- Access to an adviser who knows a lot about DIY super
- Comfortable with the costs involved in setting up and running the DIY fund
- Experienced in investing, and keep up to date on the markets and investment trends
- Familiar with, or willing to learn about the superannuation rules
- Aware of the administration and compliance work involved in running the DIY fund
Running your own super fund is not necessarily a difficult task but you need to keep your wits about you. You may hear a lot a noise about DIY super, and sometimes from people who know nothing about super. Your best defence against bad advice is to start with your own research.
The term, DIY super fund, is a nickname for what is officially known as a self-managed superannuation fund (SMSF). A SMSF must have fewer than five members, and the Australian Taxation Office keeps a vigilant eye on super proceedings to ensure SMSFs stay on the right side of the super laws.
Assuming you have fund choice, setting up a SMSF is one of your super options. You can also choose another type of DIY super fund, known as a small APRA fund, although it’s a less popular option. A professional trustee runs a small APRA fund, and the Australian Prudential Regulation Authority regulates the professional trustee and fund. This type of DIY super fund costs more than a SMSF, because you have to pay trustee fees, although the trustee fee usually includes any administration and compliance costs.
Attracting the independent investors
Running your own fund gives you control over where your super money is invested, and access to a greater choice of investments compared to managed super funds, such as retail or industry funds. As a DIY fund trustee, you can invest in direct property, artwork and virtually any valuable asset. You can even purchase business property, such as an office, and use the property in your business.
Before you get too excited about the positives of running a DIY fund, you need to ask yourself three key questions: Are you into commitment? Are you familiar with investing, and do you have lots of money, that is superannuation money?
These questions may sound like an interview for a matchmaking agency but running a DIY fund is a serious commitment, just like any long-term relationship. After all, you may be running your fund for more than 50 years – longer than most marriages – if you’re going to pay yourself an income stream from your DIY super fund in retirement.
Choosing to run your own fund usually means that you’re confident you can deliver better returns than the professionals. As trustee of your DIY fund you must draft an investment strategy, follow special investment rules, and choose investments that will deliver you a retirement benefit when you finish work. If you know nothing about investing, a DIY fund is not the place to begin your investment classes.
Reaching critical mass
For a self-managed super fund to be cost-effective, you need a superannuation balance of around $200,000, either on your own or among the other members of your DIY fund. If you don’t have $200,000 in super it may still be cost-effective if you plan to make substantial super contributions in the first year.
On average, you can expect annual costs to be between $1,500 and $5,000. You fund costs may be higher depending on how complicated your fund’s investments are, and whether you hire a professional administration company or rely on your accountant or adviser to do a lot of the administration relating to your fund. The costs of setting up a DIY fund can range between $500 and $3,000, depending on how much advice you need, and whether you have a corporate trustee, or appoint individual trustees to run the SMSF.
The decision to run your own super fund also depends on how willing you are to get on top of the superannuation laws, and the tax rules and reporting requirements.
If you do have fund choice, and you’re considering a self-managed super fund then you need to start planning. Your DIY fund must be fully operational before you can change funds.
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