Monday 24 December 2012

Self-managed Superannuation Savings continue to boom

A recent article in the SMH reports that the SMSF sector now has about $440b in assets under management, with $26.5b going into SMSF each year. The reason people choose to manage their superannuation themselves are twofold - direct control (ie. freedom to choose any investment strategy and tactics, provided it is within the government rules applying to superannuation trustees) and lower fees compared with retail superannuation funds (the average expense ratio of SMSF decreased by around 20% to only 0.54% betweem 2008 and 2011).

With a combined SMSF fund balance of around $500,000 (DW and myself are the current trustees, with DS1 and DS2 to be added as a members/trustees when they each turn 18) and the annual admin fee charged by eSuperfund of only $700, plus the ATO SMSF annual fee around $150, we enjoy an even lower admin expense ratio of about 0.17%. On top of this of course are any fees charged by your investment managers - for example, we don't pay any management fees for our investments in ASX200 CFDs or cash sitting in our ANZ V2 cash management account, and the Vanguard Index Fund where we have about $410,000 invested charged 0.90% on the first $50,000, 0.60% on the next $50,000 and only 0.35% on the remaining investment balance - averaging about 0.4475% management fund. However, the investment management fees are the same whether invested via a SMSF or retail super fund (retail funds often claim that their higher admin fees are offset by the benefits of investing 'pooled' funds at wholesale management fee rates. However, the savings are often negligible - for example, the Vanguard High-Growth Fund has a wholesale fund (min investment amount $500,000) management fee of 0.37%), so the big saving is the minimal admin fee available via SMSF compared to fees of up to 1% or more charged by many retail superannuation funds.

As usual the article quotes 'analysts' as stating that investing via a SMSF is only cheaper for people with a balance of about $300,000, whereas using eSuperfund the minimum balance required to actually save fees could be as low as $100,000 (depending on what fee your current retail superannuation fund charges). Of course, eSuperfund is a 'no frills' fund administrator. There is a 'one size fits all' standard trust deed, some restrictions on investments (ie. which bank account is setup for deposits into the fund, and only Comsec for share trades, and none of the more exotic investments such as art and collectibles that some SMSF run via accountants have sometimes invested in). Unlike running a SMSF through an accountant, you also can't pick up the phone to chat about your SMSF - eSuperfund prefers all questions via email, which I haven't found to be a problem.

Overall, we're happy with our move from the default retail fund selected by our employer into a SMSF administered by eSuperfund. I estimate we are saving around $3,000 each year in admin costs, which is more than the annual SGL contributions being received by DW working part-time! As doing the required 'paperwork' (preparing an annual "checklist" for eSuperfund's use in preparing our tax returns, member statements and annual audit report) only takes a few hours each year, this is a worthwhile cost saving.

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