Tuesday 14 August 2007

Self-Managed Superannuation Fund get Funded

We're in the last stages of transferring our retirement funds from our employer-sponsored fund (with BT) into the Self-Managed Superannuation Fund that we setup a few months ago. I mailed in the paperwork to BT at the start of last week and the funds had finally disappeared out of our BT accounts yesterday. Luckily that means that the withdrawal was probably processed on Friday using the unit pricing from COB on Thursday - that would mean that we just managed to escape the 4% drop in the Australian market that happened on 'Black Friday'.

So far only the funds from DWs BT account have appeared in our SMSF's bank account. As DW was closing her BT account the transfer was done electronically. I'm keeping a small amount of money in my BT account (enough to pay my life insurance premiums for a while) so I had to fill in a different withdrawal form which went to a different address at BT. The withdrawal appears to have been processed at the same time as DWs but will be sent via Cheque, so I probably won't receive the cheque until later in the week and have to deposit it into the ANZ bank account of our SMSF.

Some additional funds have also appeared in the SMSF bank account, so it looks like the compulsory SGL contributions from our employer are successfully being redirected into our SMSF. The amount doesn't reconcile with what I expected to be paid in for July, but I'll have to wait for the bank statement to try and work out exactly what has been paid in.

Once the cheque for my transfer has been processed I'll invest the entire balance of our SMSG in the Vanguard Lifestages High-Growth fund. The asset mix in this fund is broadly what we want, and by having the entire balance in this fund we'll save a lot on management fees.

The target asset allocation for the High-growth fund is:
4% Australian Fixed Interest
6% International Fixed Interest (hedged)
48% Australian Shares
29% International Shares
10% Property Securities
3% Emerging Market Shares

Vanguard in Australia charges 0.9% fee on the first $50,000 invested in any fund, 0.6% on the next $50,000 and then 0.3% on the balance above $100,000. This is a lot better than the 1.3% or more growth-oriented funds were charging in the BT scheme. In addition the BT fund admin fee was around 0.75% (even after a hefty employer-rebate). The SMSF in comparison will only pay eSuperFund $599pa plus another $150pa to the ATO. The total admin cost for our SMSF ($749pa) is therefore only 0.23% of our initial balance and will decrease over time as our SMSF balance accumulates. While we will be missing out on the dubious benefits of active fund management, I think the net saving of fees will exceed the typical outperformance of fund managers compared to the relevant indices.

Copyright Enough Wealth 2007


mOOm said...

Why didn't you just open a superannuation rollover account or whatever with Vanguard then?

Wills said...

I am personally thinking of switching my own super to Vanguard and definitely do not have enough in my super to go the SMSF path yet.

Just out of curiosity though, what's the benefits of paying the extra fees for SMSF instead of just opening a super account with Vanguard if the money is going to be invested there anyway.

enoughwealth@yahoo.com said...

For a smaller super balance Vanguards plan would be a good choice, but once you get above a certain amount a SMSF through eSuperFund has a lower admin fee than even Vanguards.

eg. On $100K balance the fees would be:
eSuperFund admin: $599
ATO annual fee: $150
Vanugard fee: 0.9%x$50K + 0.6%x$50K
= total cost: $1499

compared to Vanguard super:
mgt fee: 0.37%x$100K
admin fee: $66pa + 0.75%x$50K + 0.50%x$50K
= total cost: $1061

so, for $100K investing via a SMSF is more expensive

However, for $400K the costs are:
eSuperFund admin: $599
ATO annual fee: $150
Vanugard fee: 0.9%x$50K + 0.6%x$50K + 0.3%x$300K
= total cost: $2366

compared to Vanguard super:
mgt fee: 0.37%x$400K
admin fee: $66pa + 0.75%x$50K + 0.50%x$350K
= total cost: $3671

so, for $400K investing via a SMSF is less expensive than the same investment in Vanguard High-growth fund via the Vanguard personal super plan!

In the limit, for very large balances Vanguard total cost (mgt + admin fee) tends to 0.87%, while the at the limit the SMSF/Vanguard alternative tends to a total cost of 0.37% (although you'd have to have a couple of million in the SMSF for the fixed eSuperFund and ATO fee to become truly negligible).

The other benefit of using the SMSF is the possibility of investing in direct shares traded through e*Trade, CFDs traded via IG Markets, or investing in other assets such as rare stamps, bullion, commercial property or whatever. I don't plan on investing in any of these in the foreseeable future, but investing via Vanguard would preclude this.