Superannuation Discussion + market volatility

[cove]

One of our medical friends has gone with Esuper and he has figured most of it. His questions are not that difficult to answer and he has saved about $10,000 in accounting and audit by doing it himself with Esuper.
A colleague has north of $10 million in his fund for two so he has to adjust things later in this financial year.
We wish each parliament would stop screwing around with the rules but it is too much money for a Government to leave alone.
The anti detriment rule change was mostly unreported and that sliced some money off beneficiary pay outs.

 

[Pushka]

The superannuation money bucket proves far too tempting for the pollies. Just wish they would tinker properly with their own war chest of goodies.

 

[burmans]

A colleague has north of $10 million in his fund for two so he has to adjust things later in this financial year.

Even if you have more than 1.6M in your super, its still only going to be taxed at 15% which in my view is still a tax advantaged rate! I do agree with the stuffing around bit, but frankly don't really see how people having 10M in a fund and paying no tax was ever going to stand up to scrutiny, so think we've been lucky while we've had it.

 

[exceladdict]

Thanks so much everyone for the responses so far. It sounds like my balance (and level of skill) is too low for an SMSF at this stage.

However to get me there - are there any retail/industry funds, or asset classes, that members would recommend investing in given the medium term economic climate?

My current fund has a small number of defined options, all with a ~1% fee, where you can set your own percentages i.e. local/overseas shares, local/overseas fixed interest (hedged or unheged to AUD) or the option to invest directly into any of the ASX300, with an annual fee for that option plus brokerage fees per transaction.

Very open to swapping funds at this stage.

 

[cove]

burmans my colleague did quite well with 2 shares that went up a lot.
We have stopped contributing as we have to pay a 30% contribution rate. Our investments have performed sweetly over the few years we have run it ourselves.
Many would struggle in the stock market and no one gets it right all of the time.

 

[serfty]

Until you get to that $250K, something like ING living super may an idea.

They don't have a fee per se, but they do make you keep the greater of $500 or 1% in a "cash hub" which returns interest at .45% off the Govt. Cash rate. This is capped at $10K.

So the cost is ~half of 1 percent.

On a $150K balance, that's $7 PA.

 

[Pushka]

Even if you have more than 1.6M in your super, its still only going to be taxed at 15% which in my view is still a tax advantaged rate! I do agree with the stuffing around bit, but frankly don't really see how people having 10M in a fund and paying no tax was ever going to stand up to scrutiny, so think we've been lucky while we've had it.

10 million in super - can only imagine.

 

[voulez]

Hi OP, few things for you to consider (as mentioned by other posters):
1. Benefit of investing in super vs outside. N/a if you’re referring to existing balance but if you’re looking to contribute more into super, worthwhile comparing tax benefits vs access issues, etc.

2. Level of involvement in your super/ investments. If you’re paying higher fees, you’d expect to have to do less. E.g., your asset allocation query has at least two solutions: a) you deciding on your own asset mix which is likely the cheapest option but will require you to monitor and make investment decisions when to get into/ out of an asset class; or b) invest in a multi-asset/ pre-mix option e.g. a Balanced fund where the manager decides on the mix for you.

3. Your risk profile and appetite. Most individuals will have their super locked away until their 65[SUP]th[/SUP] birthday so for a 40 year old, that’s a 25-year investment time frame in which case why invest in cash/ bonds at this stage except for diversification purposes? To give you an idea, AustralianSuper’s most aggressive investment option, High Growth, has a recommended investment time frame of 12+ years and a 6% total allocation to cash + bonds. Within each asset class, you have the option of diversified (e.g. invest in a passive fund that holds all ASX 300 stocks, or a portfolio of 100 properties) which will be cheaper than a concentrated option (invest in 10 stocks, or buy a single investment property); the latter is riskier with potentially higher returns.

4. Your fee appetite. While fees are an important factor, it’s equally important to look at returns net of fees i.e. some fees are worth paying for (active management, better managers, etc.)

5. Insurance. Very important to sort this out prior to cancelling/ upgrading existing ones, especially for individuals who have existing conditions. Most insurance-related scandals relate to inappropriately insurance cancellations.

6. Retail vs industry funds. Broadly speaking, I’d rate the largest five industry funds on par with the Big 4 banks and AMP-owned retail funds. IMO the key difference is industry funds have very strong inflows which allow them to invest in large, illiquid assets (e.g. AustralianSuper acquiring Ausgrid) which have strong returns but these funds remain relatively uncompetitive. The retail funds attract much better talent but investment decisions are influenced by varying in/outflows (i.e. can’t be as “long term” as the industry funds).

7. Lastly, re SMSFs – I think there’re quite a few who underestimate the effort required, and/ or overestimate their ability to achieve better after-fee outcomes. The median Balanced super fund returned 9.42% pa over the last five years (Superratings) – that’s net of fees and doesn’t require you to lift a finger.

All in all, the info above is selective so worthwhile speaking to a planner (although most will be affiliated with some fund). Hope that helps!

 

[Buzzard]

What about what is known as an SMSF Lite fund such as Choiceplus (provider is Hostplus)

Basically an SMSF Lite fund allows you to invest part of your super balance directly into shares that you choose yourself.
You don't get lumped with all the compliance, paperwork and legal hassles of running your own SMSF.

Other than Hostplus, SMSF Lite are also run by funds such as Cbus, Australian Super, Legalsuper and others.

If it was me I would go with Hostplus. You could even have a second Hostplus account, say the Hostplus Indexed Balanced Fund.

Just be wary of advisors that want to push you into their own product or want to fleece you in fees and charges that could otherwise be growing your investment.

 

[exceladdict]

Hi OP, few things for you to consider (as mentioned by other posters):
1. Benefit of investing in super vs outside. N/a if you’re referring to existing balance but if you’re looking to contribute more into super, worthwhile comparing tax benefits vs access issues, etc.

At this stage of life I don't have signifcant tax benefits from investing in to super, and I've been putting excess income into an offset account to minimise interest costs on my mortgage. I'm mainly looking at my existing balance and compulsory contributions - am I doing this right?

2. Level of involvement in your super/ investments. If you’re paying higher fees, you’d expect to have to do less. E.g., your asset allocation query has at least two solutions: a) you deciding on your own asset mix which is likely the cheapest option but will require you to monitor and make investment decisions when to get into/ out of an asset class; or b) invest in a multi-asset/ pre-mix option e.g. a Balanced fund where the manager decides on the mix for you.

3. Your risk profile and appetite. Most individuals will have their super locked away until their 65[SUP]th[/SUP] birthday so for a 40 year old, that’s a 25-year investment time frame in which case why invest in cash/ bonds at this stage except for diversification purposes? To give you an idea, AustralianSuper’s most aggressive investment option, High Growth, has a recommended investment time frame of 12+ years and a 6% total allocation to cash + bonds. Within each asset class, you have the option of diversified (e.g. invest in a passive fund that holds all ASX 300 stocks, or a portfolio of 100 properties) which will be cheaper than a concentrated option (invest in 10 stocks, or buy a single investment property); the latter is riskier with potentially higher returns.

4. Your fee appetite. While fees are an important factor, it’s equally important to look at returns net of fees i.e. some fees are worth paying for (active management, better managers, etc.)

5. Insurance. Very important to sort this out prior to cancelling/ upgrading existing ones, especially for individuals who have existing conditions. Most insurance-related scandals relate to inappropriately insurance cancellations.

6. Retail vs industry funds. Broadly speaking, I’d rate the largest five industry funds on par with the Big 4 banks and AMP-owned retail funds. IMO the key difference is industry funds have very strong inflows which allow them to invest in large, illiquid assets (e.g. AustralianSuper acquiring Ausgrid) which have strong returns but these funds remain relatively uncompetitive. The retail funds attract much better talent but investment decisions are influenced by varying in/outflows (i.e. can’t be as “long term” as the industry funds).

7. Lastly, re SMSFs – I think there’re quite a few who underestimate the effort required, and/ or overestimate their ability to achieve better after-fee outcomes. The median Balanced super fund returned 9.42% pa over the last five years (Superratings) – that’s net of fees and doesn’t require you to lift a finger.

All in all, the info above is selective so worthwhile speaking to a planner (although most will be affiliated with some fund). Hope that helps!

Thanks for the feedback (and to other posters as well) - agree in that I'm really looking for non-biased advice where people aren't trying to sell me something (thus why I love this forum). I didn't consider how super ownership of infrastructure might impact the security / reliability of those providers (but I guess for people in super as an income phase of life, that would be good?).

What about what is known as an SMSF Lite fund such as Choiceplus (provider is Hostplus)

Basically an SMSF Lite fund allows you to invest part of your super balance directly into shares that you choose yourself.
You don't get lumped with all the compliance, paperwork and legal hassles of running your own SMSF.

The "SMSF Lite" option, similar to an ad I've seen floating around facebook about a fund that allows you to invest directly in apple, etc (spaceship super or something like that) interests me but I'm wary that the fees - and my limited knowledge of financial markets - would significantly skew the risk vs reward.

 

[serfty]

Until you get to that $250K, something like ING living super may an idea.

They don't have a fee per se, but they do make you keep the greater of $500 or 1% in a "cash hub" which returns interest at .45% off the Govt. Cash rate. This is capped at $10K.

So the cost is ~half of 1 percent.

On a $150K balance, that's $30 PA.

Note that this allows for your own share trading if that is you desire (Base fee of $300 per year), term deposits, balanced funds (default or you specify the mix).

 

[cove]

You only have to pay off your home mortgage once provided you keep your home insured. We have been in our family home since 1991 and we make sure the place is properly insured for re-instatement. We bought it at auction when the recession was hitting hard.
We prepaid our two sons private school fees thru to Year12 because I found I had a heart issue in 1994. You adjust your thinking if you have a health issue.
Getting our superfund fired up came a lot later so we went freehold the house, pay the education and then super in earnest when we had the time.

 

[lovetravellingoz]

For those considering SMSF if you also intend to have your partner/spouse in it a question you should ask yourselves is if something happened to you would your partner/spouse still be able and willing to run the SMSF.

 

[cove]

Yes we talk about superannuation and investments a bit so there should be no surprises if I put my head into a pizza as the end game. Wading thru the superfund involves looking at 14 listed investments so nothing too hard and no complications.

 

[flychrisfly]

With regards to insurance, the TPD definition in super is now legally 'any occupation' which makes the insurance cheaper but it means you have to be unable to work in any occupation (that is, be very disabled) to claim the benefit. The insurance offerings outside super allow you to choose 'own occupation' which pays out if you can't work in an occupation you are qualified for by training or experience.

Also, insurance premiums inside super are tax deductible at the rate of tax paid by super funds (15%) which works for life and TPD insurance since these are not tax deductible as a retail insurance product. Income protection insurance outside super (ie normal retail insurance) on the other hand is tax deductible at your marginal tax rate which may make it cheaper to hold outside super.

Please take any tax and financial advice as general advice, as your situation is your own.

 

[flychrisfly]

Note that many super funds (both the more expensive wraps as well as industry funds) offer direct investment options in addition to standard managed funds so you can choose to move cash into your own choice of shares or ETFs, etc.

Some funds have expensive buy/sell splits (the difference between how much it costs to buy units in a managed fund and what you get when you sell them) which can effectively reduce the amount you invest. These may not be revealed by the ICR or MER as they are not ongoing fees. A low buy/sell split, in my experience, is 0.06% whereas some are as high as 0.23%.

Good luck!

 

[DaveB]

SMSF are definitely not for everyone and suggest you have some sound reasons before setting up a SMSF.
I had a SMSF in my early 30's, closed it down in my 40's moving all funds across to AustralianSuper, and now in my 50's will start up the SMSF to enable the fund to assist in the purchase of a commercial property for my business. During this time, have always run personal finance software (Quicken Personal Accounting) to track personal income, expenses and investment returns.
I closed down the SMSF as it quite frankly was becoming onerous with my time better spent building the business I had started up in my late 30's. AustralianSuper, like most funds enables me to still buy ASX300 shares and ETF's.
The property purchase for the business will be part owned by the SMSF through a property trust structure so the property must remain unencumbered. Buying business property through your SMSF can be useful, however ATO borrowing rules for SMSF's are restrictive involving loans. Shortly turning 55, borrowing would have prevented my main aim of slowly winding down my involvement in the business with shares in the business and property trust slowly bought out by management and their SMSF's.

 

[docjames]

With regards to insurance, the TPD definition in super is now legally 'any occupation' which makes the insurance cheaper but it means you have to be unable to work in any occupation (that is, be very disabled) to claim the benefit. The insurance offerings outside super allow you to choose 'own occupation' which pays out if you can't work in an occupation you are qualified for by training or experience.

Also, insurance premiums inside super are tax deductible at the rate of tax paid by super funds (15%) which works for life and TPD insurance since these are not tax deductible as a retail insurance product. Income protection insurance outside super (ie normal retail insurance) on the other hand is tax deductible at your marginal tax rate which may make it cheaper to hold outside super.

Please take any tax and financial advice as general advice, as your situation is your own.

Whilst agreeing with all of that, I'd also point out that the default TPD cover bundled with most super funds is "any occupation" however many funds will also offer "own occupation" (at a greater premium, and often requiring medical checks).

 

[cove]

I forgot to say that none of my comments on this thread should be construed as financial advice.
Getting to $3.2 million in superannuation as a couple is a starting target and then earning about $200,000 a year off this capital should be ok for most.
Many don't read how their superannuation is performing. I think everyone should read the reports that are sent.

 

[chocks]

If you want to be hands on and have control but without the costs of seting up a SMSF I would also recommend taking a look at ING Living Super - lots of flexibility with regards to share trading etc.