Not everyone requires an adviser to make investment decisions for them; they all, however, need to understand when help is required.
By Andrea Slattery, CEO, SMSF Professionals Association of Australia
Every superannuation fund plays a significant role in Australia’s development, irrespective of whether it is large, medium or small. Whether it’s a retail, industry, corporate, public sector or self-managed fund, the contributions received are required to be invested for the benefit of members.
Each type of fund has a distinct role to play in the overall superannuation picture, and no one type of fund should be considered in isolation. Superannuation funds exist to ensure the money is there for retirement – or for dependants in the event of the member’s death.
Self-managed superannuation funds (SMSFs) represent about 30 cents of every $1 in Australian’s superannuation savings and contribute just as significantly to the country’s future as other types of fund.
Crucially, they contribute to Australia’s investment pool since they invest in companies listed on the stock exchange, either directly or indirectly; provide loans to large public organisations; and invest directly or indirectly in property. Even the cash holdings of SMSFs, like those of all other funds, are used by financial institutions for investment in projects that support Australia’s future.
Overall, the SMSF investment pool is basically no different from those of the larger funds, as data from the superannuation regulators, the ATO and APRA, show.
Although the rules are modified and develop over time, superannuation’s key role has never changed: that is, to be there for retirement and other purposes approved by the legislation.
Different types of fund have different advantages. Some provide a wide range of services; others are much more limited in what they provide. In some funds, members in effect make the investment decisions about the destiny of their superannuation while in others those decisions are made by investment managers.
Some years ago, the superannuation rules were changed to provide people with a choice of superannuation fund. Many hailed choice as a great step forward because members could choose their own destiny – how and where their retirement savings were to be managed. This meant people could access the most suitable fund for them rather than one chosen by their employer or through an industrial agreement or award.
There is no restriction, in most cases, to the type of fund that can be used for choice of fund purposes; due to lack of engagement with fund members, however, this has never really taken off.
SMSFs have specific purposes. They provide a person access to direct control over investments, flexibility in investment timing and may provide cost savings over the larger funds. Each type of fund has its role as part of the retirement savings and draw-down cycle and SMSFs are an integral part of it.
As with all superannuation funds – and with any personal investment decision – the pros and cons of a self-managed superannuation fund should always be considered before proceeding. If the advantages are understood correctly, then the fund can represent a rewarding experience. As history shows, all superannuation investments are subject to the uncertainties of the market, not just those in which self-managed superannuation funds invest. The performance of larger funds over the last decade is evidence of that.
SMSF detractors say it’s okay for many small business people and others to invest in and run a successful business, but when it comes to superannuation, these people have no idea about overseeing the investments in their superannuation fund. The SMSF Professionals Association of Australia (SPAA) believes these people, aided by professional advisers, can make these decisions
Taking professional advice is critical. With SMSFs, what must be remembered is that not everyone requires someone to make investment decisions for them. They all, however, need to understand when help is required. In this respect, an SMSF trustee is in the same position as a fund that engages professional mangers and advisers because of the need for specialist expertise, or due to the size of the task involved.
In any event, many people enjoy the experience of having their own superannuation fund just like those who make personal investment decisions directly. At least if they mess things up it’s their retirement savings that are at risk, in contrast to the many superannuation fund members who rely on the investment skills of managers paid to do the task.
Whether one provides better results than the other will always be a matter of conjecture – and strong debate.
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