People opening self-managed superannuation funds need to be aware of their legal obligations and requirements, experts have warned as new statistics from the Australian Taxation Office show a big jump in the number of workers shifting to SMSFs.
The figures show that between the years 2007 and 2011, the number of self-managed superannuation funds grew by 31%, and more than 29,500 a year were started on average.
“SMSFs are not for everyone,” says Peter Burgess, technical director of the Self Managed Super Fund Professionals’ Association. “Obviously, everyone needs to have an understanding of their roles and responsibilities in being a trustee.”
“So while you do have some flexibility and control, you need to invest a bit more time in managing everything.”
The ATO statistics reveal that in the five year period to June 30, 2010, contributions averaged $34.2 billion ever year. Contributions peaked in 2007, and most member contributions were to SMSFs with assets worth between $500,000 and $5 million.
However, total contributions to SMSFs have fallen over the past five years. In fact, SMSF contributions as a proportion of contributions to all funds fell from over 40% in 2007 to 20% in 2010, which is below the level recorded in 2006.
Some Government intervention, including halving concessional contribution caps, has been associated with the decline. But the ATO notes that after the financial crisis, growth returned to an average level.
Statistics also showed there were 8,792 SMSFs that had to lodge Auditor Contravention Reports in the year ending June 30, 2011. That’s up by 8% from the previous year, while the number of contraventions rose by 20%.
Burgess says people opening up SMSFs need to be aware of their obligations as opposed to operating a fund from one of the major institutions.
“There are rules that need to be followed, and so while you do get flexibility, you need to be aware of everything that’s going on.”
“You need to have your fund audited every year, those statements audited every year, and you need to lodge an annual return and keep up the records of your transactions.”
Burgess also says anyone opening an SMSF needs to be on top of all the legislative changes, whether they are in effect or pending, as the Government is keen to crack down on any rorting in the system. The industry has already been involved in disputes with the Government this year over the way certain assets are calculated.
The figures show more and more people are opening SMFS for retirement purposes, with about 30% of SMSFs starting pension payments in 2010 being less than two-years-old.
Burgess says this is a surprising indication that more retirees want a greater feeling of control over their finances when they retire.
“People believe they can do it better themselves by taking control of their investments and setting up more flexible options.”
“With a market downturn, that sort of shift makes sense. People are turning to self-managed funds in order to draw a retirement income.”
“This suggests they see self-managed funds as delivering a more appropriate retirement product solution.”