Knowledge is key for SMSFs

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The growth of SMSFs could cause problems for retirees and create further strain on the nation’s budget, if large numbers of SMSF trustees fail to correctly manage their retirement funds, according to Centric Wealth.

ATO statistics show the SMSF sector is currently worth $500 billion (about one-third of all superannuation assets) and has nearly one million trustees. 

Phil Kearns, Centric Wealth Chief Executive Officer said the latest research from the SMSF Professionals’ Association of Australia shows an additional 1.4 million people are considering setting up an SMSF over the next three years.

“This will mean the number of self managed retirees will swell to almost 2.5 million. Is it likely that all these people will have the knowledge, experience and time needed to manage their SMSF effectively? In my view, this could create a number of problems for the individuals and the government, who may end up financially supporting these people down the track.”

Kearns says many people incorrectly believe running an SMSF is just a matter of getting the investment strategy right.

“Managing an SMSF is no easy task.  While many SMSF trustees are highly proficient at managing their strategy, compliance and investments, others may not appreciate the complexities involved or the implications of the role of being a trustee.”  

Natasha Panagis, Centric Wealth’s Technical Specialist, said complex and ever-changing requirements and regulations mean you need to have a very thorough understanding of the rules to avoid large fines. 

These individuals will all need the time, resources and knowledge to ensure they abide by government regulations, maintain adequate insurance and receive good investment returns. Getting this wrong can have an even greater negative impact than simply missing investment returns.

“Aside from onerous reporting requirements, there is also the issue of costs.  It is not uncommon for clients to be paying their accountant over $6000 a year to administer their fund and ensure correct audit and compliance requirements are followed. Some administration providers will quote one headline low fee, but hit the trustee with a range of fees for various products and services.”  

Kearns says he believes the government needs to provide more education to potential SMSF trustees.

“If the government does not act on this issue now, they could find vast numbers of Australians retiring without adequate retirement savings. This will mean strain on the nations Aged Pension budget.  Ensuring that anyone setting up an SMSF has the right knowledge – or the right support by way of an appropriate qualified financial adviser – is the first step in avoiding the pitfalls of running their own fund.”