Superannuation Discussion + market volatility

[QF WP]

I like this one from 1961:

Superannuation funds exempt from tax if they held required amounts of Commonwealth Bonds.

Then later taxation came back...

The old "30/20 rule" as I remember . It was a rule that was in force in Australia from 1961 to 1984. To quote from www.cmac.gov.au

‘Under the 30/20 rule life insurance companies and superannuation schemes received tax concessions if they held at least 30% of their assets in public securities with at least 20% of their total assets in securities issued by the Commonwealth.‘

Insurance company Directors who operated the Statutory Funds, plus Trustees of super funds made absolutely sure they held in excess of both amounts at all times . Bond traders did well from both sources

 

[CaptJCool]

The old "30/20 rule" as I remember . It was a rule that was in force in Australia from 1961 to 1984. To quote from www.cmac.gov.au

‘Under the 30/20 rule life insurance companies and superannuation schemes received tax concessions if they held at least 30% of their assets in public securities with at least 20% of their total assets in securities issued by the Commonwealth.‘

Insurance company Directors who operated the Statutory Funds, plus Trustees of super funds made absolutely sure they held in excess of both amounts at all times . Bond traders did well from both sources

Hence the changes to the asset mix in the CSS public service fund in 1988.

While those rules gave tax concessions, they also capped earnings.... from then, the 54/11 loophole emerged as a direct result of earnings from stock exchange listed shares far higher than return fares on govt bonds !

 

[JohnK]

Albanese was asked about that this morning on radio. He said that as an employee their contract for Super was protected. Yeah.

What absolute codswallop.

 

[Pushka]

What absolute codswallop.

Absolutely. That’s what the interviewer pretty much said.

 

[JohnK]

Politicians have all these benefits and a pension for life after serving 8 years. Tax free? And they can continue working and still enjoy generous benefits. What a life.

 

[Flying mermaid]

We all want the best for ourselves, and the proposed change will certainly hurt me more than many as I have quite a number of shares outside super, but when you examine it, it was a benefit that opened in 2010 that was more generous than it should have been. It may never get up or course, and it it does I would be sure that it will have been .

just a minor correction here the refunding of franking credits actually came in in 2000 and Simon Crean who was shadow treasurer told parliament that labor had no trouble supporting it because it was their policy.....

What made it really valuable was the change in 2007 which removed tax on super funds in pension mode. No doubt that will be the next to go.

 

[OZDUCK]

Hence the changes to the asset mix in the CSS public service fund in 1988.

While those rules gave tax concessions, they also capped earnings.... from then, the 54/11 loophole emerged as a direct result of earnings from stock exchange listed shares far higher than return fares on govt bonds !

Aaaah - 54/11 My favourite numbers. They have been keeping me happy for 9 years now, and hopefully for many more.

 

[cove]

We don’t use a corporate trustee for our SMSF. We do have a trustee company for our family trust that started in the seventies.

 

[cove]

Esuperfund has worked for us. They keep the accounting and audit records and we invest the money. Very accurate, great pricing and no issues. Have never had to go to see the admin folks in Melbourne and we are happy with their accurate work. They have access to the broker and our bank account
That said if you need lots of assistance investing or if you are weak with paperwork then an SMSF would not be a good idea. We use Commsec and ANZ Bank combination and have stayed with them from the start which was what Esuperfund originally recommended.
This is not investment advice......

 

[lovetravellingoz]

Esuperfund has worked for us. They keep the accounting and audit records and we invest the money. Very accurate, great pricing and no issues. Have never had to go to see the admin folks in Melbourne and we are happy with their accurate work. They have access to the broker and our bank account
That said if you need lots of assistance investing or if you are weak with paperwork then an SMSF would not be a good idea. We use Commsec and ANZ Bank combination and have stayed with them from the start which was what Esuperfund originally recommended.
This is not investment advice......

I am still umming and ahhing about setting one up. Main con is that if I pass on/ become incapacitated that my wife would struggle. Fit and healthy at present and 57, but the wife has little interest in financial matters and I dread tax time each year as the processes freaks her out!


Then again to pull the pin at 60 and to then be able to travel the world when and where you want without having to worry about paperwork deadlines has appeal too. Especially as our taste in travel often includes places with restricted , or even no, internet access.

ie on On our last 5000km trans-Africa 4WD trip the internet was often either non-existent or at crawl spread!

Or on our last Whitsundays sailing trip the mobile was sometimes out of range.

There are a number of "bucket list trips" which become doable on retirement, but where internet is an issue such as:

• go coastal sailing for say 3 months or so
• 6-12 months driving around Africa
• 3 month out back camping 4WD in NW WA

So to have things where "black-out" periods can occur without any significant negative consequences does have a clear benefit and attraction.


Decisions, decisions....

 

[Flying mermaid]

Not really too much in the way of deadlines with a SMSF. I have a portion of the fund I actively trade because I enjoy it. The rest is in a property and shares that don’t change much. You do have an annual tax return and an audit, but generally you have a long time to get those submitted, so I wouldn’t have thought being out of contact even for months at a time would be an issue.

I do all the record keeping with an access database which Mr FM developed for me in the 90s and an excel SS. I don’t find it any burden. Once a year I print various reports and email them to my accountant together with any bits and pieces he might require for the audit. The money for rent and dividends just gets put into a bank account. I wouldn’t have thought I average more than 15 minutes a week on record keeping, except if I have a year when I am trading a fair bit.

Everything is online or email, so much easier than when we started in the 80s!

Wife is more of an issue, but she would be able to roll it over into a conventional fund wouldn’t she, where she didn’t have to do anything? Bit hazy on those rules.

There are plenty of people who manage SMSFs for you if you really want to be hands off - just different costs.

 

[cove]

LTO you can always switch if it gets too hard. My 80 year old friend switched back after 4 years and after he had saved about $15,000 in accounting ,management and audit charges as he started to battle with electronic communications.

 

[lovetravellingoz]

I am used to shares as I already manage a 7 figure share portfolio outside of super.

LTO you can always switch if it gets too hard. My 80 year old friend switched back after 4 years and after he had saved about $15,000 in accounting ,management and audit charges as he started to battle with electronic communications.

It it is not a rude question apart from the esuper normal fees, what other costs roughly do you go through in a year. ie the true total cost of running a SMSF through eSuper.



Now I realise it will vary depending on investments. But say ballpark for a $1 or $2 million fund.



SMSFs: How much does a DIY super fund cost?
ATO statistics

• SMSFs with fund balances of between $500,000 and $1 million have an average TER of 1.58% (which on SuperGuide calculations works out to be $9,480 on a fund balance of $600,000.
• Nearly half (43.3%) of all SMSFs have an estimated TER of 1% or less
• Just over a half (57.0%) of SMSFs have an estimated TER of 1.5% or less.
• Just under a quarter (24.7%) of SMSFs have a TER of one half of one per cent or less, with 12.0% of SMSFs having a TER of one quarter of one per cent (0.25%) or less, and 12.7% of SMSFs having a TER of between 0.5% and 0.25%.

Table 2: SMSFs – 2016 average operating expense ratio for different account balances
Fund size Average operating expense ratio (%)* Average operating expense ($)
$1-$50,000 14.05% Up to $7,025
$50,001- $100,000 7.35% From $3,675 up to $7,350
$100,001 – $200,000 6.41% From $6,410 up to $12,820
$200,001 -$500,000 3.26% From $6,520 up to $16,300
$500,001 – $1 million 1.58% From $7,900 up to $15,800
$1,000,001 – $2 million 1.06% From $10,600 up to $21,200
$2,000,001 and higher 0.69% $13,800 and higher

 

[cove]

With Esuperfund we have paid $899 for the two of us as their annual fee. We have spent $1681 in Commsec brokerage on purchases and sales which is 0.12% rate this year. The ANZ v2 account that we transact thru now earns interest at 1.50% at call. Currently we have a bit more than $3.2 million in the fund in shares and cash at bank. They get us the GST refund on the share transactions and the tax refund from franked dividends.
As a retired CPA I can tell you they are accurate and it has been a pleasure to deal with them.
My business friend in Melbourne who put me in touch with them has never had an issue either so I think her family has used them for about 10 years.

 

[cove]

Yes LTO Esuperfund is a bargain but only if you can handle electronic communications. With my 80 year old friend I had to help him for about half an hour a year. His adult children always claimed to be too busy to help. His wife has a cognitive decline and he has had a heart stent recently so it was time to go back to a managed fund.

 

[lovetravellingoz]

With Esuperfund we have paid $899 for the two of us as their annual fee.

We have spent $1681 in Commsec brokerage on purchases and sales which is 0.12% rate this year.

The ANZ v2 account that we transact thru now earns interest at 1.50% at call. Currently we have a bit more than $3.2 million in the fund in shares and cash at bank. They get us the GST refund on the share transactions and the tax refund from franked dividends.
As a retired CPA I can tell you they are accurate and it has been a pleasure to deal with them.
My business friend in Melbourne who put me in touch with them has never had an issue either so I think her family has used them for about 10 years.

Thanks for that. Most helpful.

You have included their yearly fee and what your investments costs are (obviously this will vary for each of us) .

Are there any other fees (ignoring set up, though there is a special on at present) ? ie Annual audit fees (it seems that this is included) and annual ATO Levy ($259)



I would probably go the Company Trustee path (which you have not done) and so is extra cost for that in my case. Plus there would be there plus the annual ASIC Fee which is not much.


Our super accounts range from at present a range 0.39% to 1.43% (the higher fee allows a much wider choice of investments).

• So on $3.2 million would be minimum of $12,500.

 

[cove]

That $899 fee covers accounting and audit as well as the tax return lodgement. The Government fee would be separate for you which we escape by being in retirement phase. I think it used to be $200 odd per year.
Now the personal trustee or corporate trustee. We went joint trustees which presumes you are staying together for the long haul. This saves a company set up and currently $254 a year running cost to ASIC.
More importantly make sure you have a completed and signed binding death benefit on each of your share of the funds to prevent the funds going into your estate. Esuperfund have forms for this.
We have 7 companies, multiple unit trusts and a family trust so we went for easy with joint trustees on the super. No need to get any more complicated as we get older. I did consider putting our sons into our fund but we nixed that thought bubble a couple of years ago.
Once you get to retirement I love the tax refunds from franked dividends that may stop if Labor get elected. We were getting slugged an extra 15% tax of $5,250 due to our taxable incomes and we hated that tax.

 

[lovetravellingoz]

That $899 fee covers accounting and audit as well as the tax return lodgement. The Government fee would be separate for you which we escape by being in retirement phase. I think it used to be $200 odd per year.
Now the personal trustee or corporate trustee. We went joint trustees which presumes you are staying together for the long haul. This saves a company set up and currently $254 a year running cost to ASIC.
More importantly make sure you have a completed and signed binding death benefit on each of your share of the funds to prevent the funds going into your estate. Esuperfund have forms for this.
We have 7 companies, multiple unit trusts and a family trust so we went for easy with joint trustees on the super.

Thanks for that.

No need to get any more complicated as we get older.

This is indeed a key consideration of mine/ours.


How have you found the investment choice? Superannuation Investment - What You're Allowed To Do | ESUPERFUND

The thing that initially jumped out of me was the limited ability to buy International Shares apart from the US.

 

[cove]

It wasn’t a problem as you only need a couple of good ones to get to the Treasurer’s limit. The first million is the hardest.
Let me say this is not financial advice.......

 

[lovetravellingoz]

It wasn’t a problem as you only need a couple of good ones to get to the Treasurer’s limit.

I think that I want more diversity than two in order to manage my risk.