The SMSF landscape is changing - ALK Financial Group Pty Ltd

More Australians are choosing to take direct control of their retirement savings by establishing a self-managed super fund (SMSF) and according to the SMSF Association, Aussies now see their super as an important part of building and managing their overall wealth.

Recent statistics show, the sector now has over 680,000 SMSFs, almost 1.3 million members and an estimated asset total of $1.1 trillion.ⁱ

In the past year there was a significant surge in the establishment of new SMSFs, with a net 47,000 new funds set up.

Growth is predicted to continue despite recent tax changes such as higher Division 296 tax on earnings for very large account balances and new tax rules for discretionary trusts.

Much of the fresh interest in SMSFs is being driven by changing demographics. For younger Australians, compulsory superannuation has existed throughout their whole working life. Which generally means, they are more tech-savvy and will feel more comfortable engaging with their super through digital platforms than older demographics.

Technology is making it easier

Technology has also strengthened communication between trustees, accountants, auditors and advisers, enabling information to be shared more efficiently and reducing some of the administrative barriers that have traditionally affected the sector.

Popular SMSF administration platforms like SuperMate and Class have integrated AI into their platforms for some time. These enhancements can cut manual administration and convert data heavy financial statements into short summaries that are much easier to understand.

Benefits of an SMSF

The appeal for using an SMSF structure to save for your retirement has many advantages, especially for those seeking a more hands-on approach, including; greater control, investment flexibility, tax strategies and a wider investment choice.

For business owners, an SMSF provides the opportunity to hold their ‘business real property’ within their super, a strategy that is unavailable in large industry or retail funds.

SMSFs also provide the opportunity to develop appropriate and tax-effective estate planning strategies for beneficiaries.

Despite their advantages, SMSFs are not the right solution for everyone, and the extra responsibilities can outweigh the benefits for some people.

The cost of an SMSF

In some cases, establishment of an SMSF is driven by cost factors, as funds with larger balances may be more cost-effective than a retail or industry fund option.

The fixed annual costs for an SMSF include the mandatory annual ATO supervisory levy, and annual professional fees for meeting the fund’s yearly compliance and administrative obligations.

According to the latest available ATO data, SMSF average annual operating expenses are $7,271, with the median fund paying $4,553.ⁱⁱ

Investment responsibilities

Although many new trustees are motivated to establish an SMSF by their desire to utilise less mainstream assets and investment strategies for their retirement savings, there are rules to follow.

Trustees are required to create and regularly update a detailed investment strategy.

This strategy must consider the fund’s particular circumstances, likely investment risks and returns, liquidity and cash flow requirements, and diversification of the fund’s investment portfolio.

What trustees need to know

Greater control comes with greater responsibility. Running an SMSF requires ongoing administration, compliance and record keeping as well as complying with all super and taxation laws.

Another key responsibility when running an SMSF is to ensure its sole purpose is to provide for its members’ retirement, so it’s important to understand the level of involvement required to manage the SMSF.

Auditing of the fund

Trustees are required to appoint an independent, approved SMSF auditor to audit the fund each year.

Any compliance issues identified by the auditor must be addressed and rectified before lodging the fund’s annual return with the ATO.

Before setting up an SMSF, do your homework to ensure you understand the strict legal responsibilities, upfront costs, and time commitment required to run one successfully.

If you’re considering setting up an SMSF, contact our office. We can help you decide whether it is right for you.

ATO warning on SMSF sales tactics

Setting up or rolling over into an SMSF is a major decision and the ATO is encouraging people to stop and ask themselves why they are doing it before acting.

The regulator is particularly concerned about promoters encouraging people to establish SMSFs solely to access specific investments: “An SMSF is a long-term retirement structure. It should support your retirement goals, not just one investment opportunity.”

Increasingly promoters are encouraging people to set up SMSFs to invest in a property, cryptocurrency or single investment assets.

Warning signs to watch for include promoters:

Describing the investment as exclusive or likely to deliver high returns
Telling you the investment opportunity is urgent
Pressuring you to act quickly or move your super before you have time to properly consider the risks.

You can check ASIC’s MoneySmart Investor Alert List to see if the investment or promoter has been flagged as a potential scam.

Before acting, ask yourself:

Why am I being encouraged to set up or rollover to an SMSF?
Do I understand what managing an SMSF involves?
Have I checked whether the person or business is registered to give this advice?
Have I consulted someone independent and not connected to the investment?

The ATO is encouraging people to remember it’s okay to slow down, ask questions, or step back from an arrangement if something doesn’t feel right.

Source: ATO

i SMSF statistical report | ATO
ii SMSF Annual Overview 2023-24 | Data.gov.au

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This information is provided for educational purposes. It does not take into account your objectives, financial situation or needs and you should consider whether it is appropriate for you. While all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither ALK Financial Group, Arthur Kyriacou & Co., ALK Wealth Pty Ltd, ALK Finance Pty Ltd, ALK Property Trust nor its related entities, employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.