SMSF 101. Superannuation origins 1990 s onward. SMSF what is it & why should I have one? Issues to consider cost is not the only one

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2 SMSF 101 Superannuation origins 1990 s onward SMSF what is it & why should I have one? Issues to consider cost is not the only one What can my fund invest in?

3 History of Superannuation Keating Government introduced compulsory Super in 1992 Started at 3%, and grew to 9% by 2002 Plans to eventually rise to 15% Current agreement means freeze at 9.5% for next 7 years Plan to reach 12% eventually in 2025

4 Superannuation coverage for males and females, various measures, 1974 to

5 Accumulated superannuation savings, June 1988 to December 2013 ($ billion)

6 Member Balances Average balance for males age = $114,000 Average balance for females age = $94,000 Estimated balance required for comfortable retirement = $350,000 Source News Ltd

7 Age Pension Pension access age rising from 65 to 70 gradually Aging population placing greater strain on available funds Changes to Asset tests mean less people accessing the pension or receiving smaller benefits

8 Super Statistics Contributions for the year ended December 2013 = $91.5 billion Benefit payments for the same year = $53.3 billion Estimated total assets as at 31 December 2013 = $1.8 trillion Source - APRA

9 SMSF s: Popular and On Trend

10 SMSF Member Growth Establishments Wind-ups Net Total number Total members establishments of SMSFs of SMSFs Mar-12 9, , , ,102 Jun-12 11,668 5,112 6, , ,223 Sep-12 11,536 1,450 10, , ,030 Dec-12 9, , , ,595 Mar-13 8, , , ,581 Jun-13 9,493 4,875 4, , ,263 Sep-13 9, , , ,095 Dec-13 7, , , ,591 Mar-14 6, , ,701 1,006,975 Source: ATO

11 Things to consider: Does it suit your personality, skills, and desire for involvement Cost vs Benefit These are not necessarily monetary considerations

12 SMSF Fundamentals Every member must be a trustee and every trustee must be a member Maximum of 4 members Corporate trustee strongly recommended All trustees must be eligible (e.g. not bankrupt) Make sure your deed is compliant Understand your obligations ATO regulates and oversees SMSF

13 SMSF Set Up Steps Order Deed and Company (if using corporate trustee) Apply for ABN & TFN Set up bank account Rollover funds from other Super accounts Develop an investment strategy Consider insurance requirements for members

14 Source: BUSSQ

15 SMSF Annual Ongoing Costs ATO Supervisory Levy (currently $259) Financial Accounts and tax return (approximately $1500) Compulsory Audit (approximately $450) Actuary Fee (if in pension mode, approximately $170) ASIC Company Fee (only for corporate trustees currently $45) Financial Advice costs?

16 Industry Fund Performance Snapshot Diversified options Investment Performance Summary to 30 June 2014 for Income Accounts Quarter 1 Year 3 Years 5 Years 7 Years 10 Years Conservative Net return 1.7% 8.7% 7.6% 8.1% 5.8% 7.2% Retirement Net return 2.0% 11.1% 8.4% 8.4% 4.5% 7.0% Balanced Net return 2.5% 14.8% 10.3% 10.5% 4.5% 7.8% Balanced-Index Net return 2.6% 13.7% 11.2% n/a n/a n/a Growth Net return 2.5% 15.6% 10.6% 10.6% 3.2% 7.4%

17 What Can SMSF s Invest In? Direct Shares (Domestic and International) Managed Funds ETF s Listed Property (Property Trusts) Direct Property (Commercial& Residential) Can borrow to purchase assets if done correctly

18 Example Scenario Husband & Wife members & individual trustees One active decision maker, one silent participant Poor investment decision, results in loss of bulk of fund balance ATO seeks payment of unpaid tax debt No safety in defence of being unaware

19 Know The Rules! Borrowing is restricted and must be set up properly Members cannot use Super Fund assets (e.g. holiday unit at coast) Understand in-house assets (Investing in related parties) New ATO penalty regime in place substantial fines Responsibility to act in the best interests of members

20 Insurance SMSF trustees have an obligation to consider whether they need to provide insurance for members as of 7 th August 2012 New rules from 1 July 2014 about what insurance can be held inside superannuation Trauma and own occupation TPD no longer allowed Should you hold insurance inside or outside of super? Consider tax implications of each strategy

21 Pensions Tax friendly on earnings Potentially tax free withdrawals Access to franking credit refunds Multiple pensions Easy to stop and start Ability to choose asset exposure and risk level

22 Estate Planning Death nominations Reversionary pensions Replacement of trustees Discretion of trustee

23 Big Super: Access to Information Member Online Keep track of your super, on your time. Member Online is a safe and easy way to keep track of your super account. Open 24/7 you can access your account whenever it is convenient for you. Member Online allows you to: Check your account balance, monitor transactions made on your account

24 SMSF s: enter, The Cloud Security we own the data Bank transactions automatically downloaded Document Management created and stored in an online portal Share Data direct from provider to admin software Reporting real-time access to customisable reports Access customised access for members and their advisors

25 Finally Consider the costs to establish and maintain Understand your responsibilities as a trustee Do you want to be in control of your own destiny? Can I perform better than the big funds? Weigh up the advantage of flexibility to choose your own assets Get good advice Get involved be engaged in the process Plan ahead for your retirement (start early)

26 ATO Publications

27 Thanks Alan King