▶ Testing your DIY super resolve – ‘Super 6C Challenge’
▶ Fulfilling the SMSF membership rules
▶ Steering your DIY super CART
▶ Building, and growing, a super duper investment portfolio
▶ Planning for your tax-free retirement
T aking control has never been so popular. One of the most talked-about trends in superannuation is the spectacular growth in the number of DIY super funds – 534,000-plus funds and counting.
Although each DIY super fund (officially known as a self-managed super fund) can have no more than four members, these humble structures now control nearly a third of all superannuation wealth in Australia – roughly one in every three super dollars is held in a DIY super fund! Even more remarkable, industry researchers DEXX&R report that DIY super funds control around two-thirds of all super money financing retirement pensions. (A pension is an income stream payable from a superannuation fund.)
Survey after survey confirms that the number one reason motivating an individual to set up a DIY super fund is the desire for control. Of course, other reasons for starting a DIY super fund stand out as well, such as cost considerations and dissatisfaction with the investment performance of an individual’s existing large super fund. Typically, a DIY super trustee wants to take control of their super savings and run their own pension in retirement. As a trustee, you’re responsible for looking after your retirement savings and ensuring your DIY super fund complies with the super and tax rules, and the investment rules.
This chapter gives you a panoramic view of the world of DIY super, including where DIY super fits into the government’s retirement policies. I set you my ‘DIY Super 6C Challenge’, which enables you to stress-test your decision to run your own super fund. I explain the two types of DIY super funds, and I outline the main tasks that you take on as a DIY super trustee. As a special finale to the chapter, I present you with your own retirement super star – a guide to the exciting tax-free super world that you enter in retirement.
Taking Control is a RIPper Plan
Taking an interest in your super savings is always a good thing. Stepping into the role of superannuation trustee, however, is lifting your interest to a whole new level. Taking total control of your superannuation benefits isn’t necessarily a difficult task, but it does require a different way of thinking; after all, the buck stops with you – every time – as a DIY super trustee.
In the good ol’ days (think right up to the 1970s), Australians generally worked from the age of 15 until the age of 65 (unless you were a married woman and then you may not have been allowed to work at all). Your employer paid you a wage that hopefully enabled you to buy a house and feed the kids, and that helped you prepare your children for a life at least as good as, and hopefully better, than your own.
If you were still alive at age 65, you were entitled to receive the Age Pension (at age 60 if you were a woman) – most retired Australians relied mainly on the Age Pension. If you were one of the very lucky, and loyal, employees of a large company or a government department or authority, then you were likely to receive a guaranteed superannuation pension for the rest of your life. After you died, and if you were fortunate, your wife – until relatively recently, only men were entitled to join these types of company or public-sector pension schemes – would continue to receive a reduced pension from the company or public sector fund.
Today, some lucky Australians still receive a lifetime pension from a public-sector fund or corporate fund. Everyone else has to fend for themselves. The federal government has made it clear that saving for your retirement is your responsibility, although it has thrown in a few tax incentives to make that task a lot easier (for info on these incentives, see Chapter 13).
The government’s grand plan – Australia’s Retirement Income Policy (RIP) – has four limbs that the federal government is banking on to raise the standard of living of Australians in retirement:
✔ Age Pension: The federal government provides a basic Age Pension, which is a safety net for those who are unable to fully provide for themselves in retirement, although the majority of retirees receive some Age Pension payment (I explain how your super affects your Age Pension entitlements in Chapter 20, and on my SuperGuide website at www.superguide.com.au).
✔ Superannuation Guarantee (SG): Superannuation Guarantee is the official term for compulsory super contributions made by employers on behalf of their employees. Australian employers have contributed the compulsory 9 per cent SG contribution from 1 July 2002 until 30 June 2013 (and contributed a lower rate from July 1992 until June 2002). The SG rate then increased to 9.25 per cent for the 2013–2014 year and increased again to 9.5 per cent for each year from 1 July 2014 until 30 June 2021. The SG rate will gradually increase to 12 per cent by July 2025 (see Chapter 4 for more info on SG and how your SG entitlements are calculated).
✔ Tax concessions for voluntary super contributions: The government provides tax incentives to encourage you to make voluntary super contributions, and to take an income stream (super pension) in retirement (see Chapters 4, 13, and 18).
✔ Co-contribution scheme: The government puts extra money in your super account, known as a co-contribution, if you make after-tax super contributions and your income is below a certain threshold (see Chapter 4).
You can take advantage of the government’s RIP without having to run your own super fund (and Chapter 2 takes you through some of the super basics), but if you’re reading this book, you’re probably already asking yourself: Are my superannuation and retirement needs being looked after in my existing super fund? If the answer is ‘no’, you have some decisions to make.
Joining the DIY Super Club
If you’re reviewing your superannuation arrangements, you may be asking yourself: ‘Should I set up a DIY super fund, or perhaps move to another large super fund, or is remaining with my existing super fund the best option?’
Changing super funds, including setting up a DIY super fund, is not necessarily the secret to a comfortable life in retirement, but changing super funds may be necessary to achieve your retirement goals.
If your existing super fund doesn’t meet your retirement planning needs, then you can decide to set up a DIY super fund, or you can choose between one of the managed super fund options (see Chapter 2).
You don’t have to be an expert in super or a guru in investing (although experienced investors survive much better in the investment jungle) or be particularly fond of paperwork to run your own super fund. What you do need to possess is the motivation to build your super savings and to take responsibility for running your super fund according to the super, tax and investment rules.
Setting up a DIY super fund is a relatively straightforward process (which I step you through in Chapter 7), but you need to get it right from the start. Many advisers and some financial services organisations can set up your DIY super fund for you, for a fee. Other licensed advisers are likely to suggest alternatives