4 areas of confusion with SMSFs (and how we can help)

SMSFs can provide greater flexibility, but the rules and regulations can be confusing.

Self-managed super funds (SMSFs) are growing in popularity, with more than 1.1 million members across the country, according to Australian Taxation Office (ATO) figures.

SMSF advantages often include greater flexibility over your retirement savings, better returns and lower fees. However, not everyone will receive these benefits and it's important to seek advice from experienced SMSF advisors before making a decision.

Only 51 per cent of even the most confident SMSF members handle their own compliance.

New research from the Australian Securities and Investments Commission (ASIC) has shown many SMSF members are confused about the basic features and legal obligations of establishing and running a fund. Here are some of the most common areas of misunderstanding, as well as what we can do to help clear the fog.

1. Tax compliance obligations

Australian tax laws can be complex, and the ASIC report showed SMSF members often aren't aware of their ATO obligations. Most SMSF members leave this work entirely to the professionals, fearing they could be fined or lose their superannuation if they make compliance mistakes. This is a prudent choice.

According to a CommBank study, only 51 per cent of even the most confident and proactive SMSF members handle their own administration and compliance. Why take risks if you have tax and compliance experts on hand to support your needs?

2. Life insurance requirements

Most traditional super funds offer life insurance and other forms of cover as a benefit from your contributions, which is not the case with SMSFs. However, 28 per cent of SMSF members didn't consider alternative insurance options when setting up their fund, the ASIC figures showed. This could leave trustees and their families without crucial financial support when they become seriously injured, ill or worse.

Ensuring you have access to comprehensive estate planning services alongside SMSF advisory options could prove useful. Alternatively, some members choose to maintain their old super fund in addition to an SMSF to keep existing insurance benefits.

3. Fraud and compensation

APRA-regulated funds offer compensation to members who suffer superannuation losses due to theft or fraud, but this redress is not available to SMSF members.

SMSF don't have fraud protection, so make sure you have the right retirement plan in place. You may have a comprehensive retirement plan, but what happens if you are a victim of fraud?

The ASIC research revealed that 29 per cent of people believed they would receive compensation, while 41 per cent didn't know. Only 30 per cent of SMSF members correctly recognised they weren't entitled to restitution if they were a victim of fraud or theft. Despite this, only 4 per cent of respondents in the CommBank study felt they needed more insurance advice.

4. Costs and time involved

SMSFs often give people greater control over how they build their retirement pot, but many reported that the time investment and costs involved with setting up and running their fund were higher than expected. Nearly one-third said the expenses were bigger, while 38 per cent claimed it was more time consuming, ASIC revealed.

Given that 43 per cent of CommBank respondents said they chose SMSFs because of lower fees and cost structures, we appreciate the findings may leave some members scratching their heads. As such, anyone considering setting up and running a self-managed fund must have access to clear, jargon-free advice on cost and times issues to make informed decisions.

How can WMC Accounting help?

At WMC Accounting, we understand that SMSFs are not right for everyone. This is why we take the time to discuss your personal and financial circumstances in detail to discover the best options for you and your family.

We are an authorised representative under the SMSF Advisors Network, and our specialist advisory department can help you with:

  • Analysing your current super set-up and options.
  • The costs and benefits of setting up SMSFs.
  • Determining whether or not you should establish an SMSF.

Please request an appointment with one of our team today to discuss your needs.

WMC Holdings Pty Ltd t/as WMC Accounting is a Corporate Authorised Representative No. 124 5401 of SMSF Advisers Network Pty Ltd ABN 64 155 907 671 AFSL No. 430062 www.smsfadvisersnetwork.com.au

Liability limited by a scheme approved under Professional Standards Legislation*
*Other than for the acts or omissions of financial services licences.

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