Superannuation Panic

[Julia]

I will definitely be interested in SMSF in the future, however as I understand the benefits of it - just dont have time to sort it at the mo (I have just moved countries!)

Moving countries is a considerable challenge. Sensible of you to not engage in other substantial changes until you feel quite settled.

Julia, thank you for posting, was kinda hoping you would as I have been reading some of the other posts and I am very interested to know more about how you have achieved the low cost SMSF - it would be great if you could let me know more about this, feel free to PM if it would be more appropriate.

Very happy to help where possible, Lurkin. Will PM you.

Many of the features of a SMSF but without the extreme costs and paperwork.

Extreme costs??? Since quoting above annual costs of around 0.2% p.a. I think it's more like 0.1%. Do you consider this an 'extreme cost"?

The paperwork is nothing like as arduous as is suggested by those who have an interest in deterring people from having SMSFs. You need to have a properly constructed Trust Deed when doing the set up and then a simple Investment Strategy which needs to say little more than that the Investment Strategy will be designed to provide members with benefits in their retirement and will be appropriately adjusted according to market conditions.
You do not need to produce some multi-page piece of fancy prose.

Apart from that, you just keep the same records as you would for any investment outside of Super. Hardly a problem, surely?

 

[So_Cynical]

Extreme costs??? Since quoting above annual costs of around 0.2% p.a. I think it's more like 0.1%. Do you consider this an 'extreme cost"?

The paperwork is nothing like as arduous as is suggested by those who have an interest in deterring people from having SMSFs. You need to have a properly constructed Trust Deed when doing the set up and then a simple Investment Strategy which needs to say little more than that the Investment Strategy will be designed to provide members with benefits in their retirement and will be appropriately adjusted according to market conditions.
You do not need to produce some multi-page piece of fancy prose.

Apart from that, you just keep the same records as you would for any investment outside of Super. Hardly a problem, surely?

Extreme as in i think from memory you pay about 1500 or 2K annually..in AustSuper with 8 trades per year ill pay less than $700 in total and have absolutely no paperwork.

Its a bit of a mandarin and oranges comparison...both citrus fruits and the same colour yet not the same things....but many SMSF people don't hold real estate and don't want to do anything super fancy, many just want a bit of creative freedom.

 

[nulla nulla]

Extreme as in i think from memory you pay about 1500 or 2K annually..in AustSuper with 8 trades per year ill pay less than $700 in total and have absolutely no paperwork.

Its a bit of a mandarin and oranges comparison...both citrus fruits and the same colour yet not the same things....but many SMSF people don't hold real estate and don't want to do anything super fancy, many just want a bit of creative freedom.

If you only make 8 trades or less each year in your SMSF then $1500 pa would be excessive (money for jam for the accountant) and $700 pa to meet the statutory requirements would be more realistic.

Paying an accountant a percentage of the portfolio you effectively control and manage the paper work of is in my opinion also excessive. Paying the accountant a realistic hourly rate that reflects the time they actually put in lodging the tax return and doing the statutory audit (of the well maintained records you prepare) is far more reasonable.

 

[matty77]

On the 28th of This month AustSuper will launch there new Member Direct investment option, allowing members the option of direct investment into the ASX300 and the full range of IShare ETFs, this is a whole new platform featuring daily trade settlement and an interest paying trade settlement account.

Many of the features of a SMSF but without the extreme costs and paperwork.

Read on http://www.australiansuper.com/memberdirectguide

Yup I know about that, also read your other posts on the topic - very interesting but not for me. I do not contribute anything extra to super - rather I am investing my own money into shares etc directly as I prefer to have a bit more control on when to buy and sell.

 

[Julia]

If you only make 8 trades or less each year in your SMSF then $1500 pa would be excessive (money for jam for the accountant) and $700 pa to meet the statutory requirements would be more realistic.

Paying an accountant a percentage of the portfolio you effectively control and manage the paper work of is in my opinion also excessive. Paying the accountant a realistic hourly rate that reflects the time they actually put in lodging the tax return and doing the statutory audit (of the well maintained records you prepare) is far more reasonable.

You should not assume that because I expressed what I pay as a % of the value of the fund, the accounting charge is formulated on that basis. It is absolutely on an hourly basis, the work involved, and changes e.g. according to the volume of trades.

You also need to remember that SMSF's are required to be audited by someone other than the accountant who prepared the tax return, so the return is sent out to a separate auditor, whose fee is usually around $500 or $600.

What I pay also includes any and all communications and advice from my accountant as I may ask for during the year. Don't underestimate the value involved here.
Many accountants will charge separately, around $60, for any email or phone call.

You can easily pay up to $5000 for a SMSF tax return and audit at some of the big firms.

 

[Julia]

If you only make 8 trades or less each year in your SMSF then $1500 pa would be excessive (money for jam for the accountant)

Have you ever actually seen a SMSF's prepared financial statements, minutes, etc involved in the tax return? The audit papers? The ATO set down what imo are very demanding criteria about how the actual figures must be presented. It is not remotely like your ordinary tax return.

 

[Julia]

Extreme as in i think from memory you pay about 1500 or 2K annually..in AustSuper with 8 trades per year ill pay less than $700 in total and have absolutely no paperwork.
.

OK, but what does that $700 represent in terms of a % of your invested capital???
For that to represent 0.1% of your investment (if you're going to compare what you pay and what I pay) then you'd have $700,000 invested. If you have even that much, I wouldn't be giving it to some one else to manage.

How does AustSuper calculate its charges? Is it a flat fee because you are restricted to X number of trades etc?

 

[So_Cynical]

Yup I know about that, also read your other posts on the topic - very interesting but not for me. I do not contribute anything extra to super - rather I am investing my own money into shares etc directly as I prefer to have a bit more control on when to buy and sell.

matty...things are changing at AustSuper, its a whole new platform where your get to set your own buy and sell price, you can do dividend reinvestment, hell you can even pay a little extra and get live data, its a whole new platform.

Order screen shot below.
~

 

[So_Cynical]

OK, but what does that $700 represent in terms of a % of your invested capital???

I have 50K in super so its about 1.75% and if i had 150K it would be around 0.6% because i would still be paying about $700

For that to represent 0.1% of your investment (if you're going to compare what you pay and what I pay) then you'd have $700,000 invested. If you have even that much, I wouldn't be giving it to some one else to manage.

Partly True...in that i would be managing most of it via AustSuper as i am now, i switched to Aust Super because i do get to manage it.

How does AustSuper calculate its charges? Is it a flat fee because you are restricted to X number of trades etc?

Flat fees and charges per trade 15 to 25 dollars a trade depending on size.

 

[Lurkin]

The way I thought of the fees was this:

Fixed costs appear low if they are spread over many units
Meanwhile, variable costs remain the same, regardless of the number of units.

Ergo, if it is spread over a large amount of super i.e. 70k, then 700pa is 1%
alternatively over a small amount $7 = 10,000%

the same can be said about trading costs.

theres returns etc to consider as well.. blah blah.

i think the point is that whilst the different providers have their arbitrary limits, there is definitely going to be a cross over point, where the fees of SMSF/ self managed style of superannuation is more cost effective than going through a fund provider.

I've been making a spreadsheet in spare time during they day, to fully represent all the fees (monthly, managerial, performance - the works), contributions, returns (based on 5 year historical rates blah blah I know this is not an indicator etc) to get an idea of how it will work.

Once I'm happy that it is a fair representation, I will move on to a comparison with doing the same with SMSF.

Where the amount is greater for SMSF - it will cross over the two = boom! time to shift to SMSF. (this is my own perspective on my own finances and is not suggestive of financial advice for anyone else. Like all of my posts in this forum it is not financial advice, use this idea at your own risk).

Frankly I expect it to be outside of 5 years, and will be heavily dependent on the return assumptions - I guess I will base this off a relevant index/indexes to get an idea.. will get to it eventually.

 

[Julia]

I have 50K in super so its about 1.75% and if i had 150K it would be around 0.6% because i would still be paying about $700

It's actually a bit less than 1.75%. i.e. 1.75% on $50K would be $875.

With $50K obviously you wouldn't even consider a SMSF. The so called experts suggest you need a minimum of $200K for it to be cost effective. I agree.

Flat fees and charges per trade 15 to 25 dollars a trade depending on size.

So the charges per trade are in addition to your $700 basic fee? Therefore if you did a couple of hundred trades per annum you'd be up for a lot more? i.e. if you did 200 trades at, say, $20 per trade, you'd be up for an additional $4000!!!

Makes my accountant look pretty cheap!

 

[Ves]

Respectfully Julia, if you were completing 200 trades in an SMSF you'd be paying $20 a pop to the broker alone. This is around $4k. Much the same as the within the managed super wrap that is being discussed here.

The accountant would be charging you an additional amount, and on such a volumnious trading history most accountants would charge you at least $6-7k from experience. I've seen as much as $10-12k on the bigger funds who trade heavily.

My firm has a different fee structure to most public practice firms. We charge a base fee, add a surcharge per each member in the fund (more for pension members), then bill in blocks of transactions. Any additional advice, pension commencements outside of this is charged separately. With a fund that has completed 200 trades, and has say, 20-25 additional bank transactions on top of this the total fee would be $5,500 if there were two accumulation members. Thats $9,500 per year if you include the brokerage at $20 per trade. Probably a lot more generous than a lot of other firms too. These are the sorts of funds that are very time-consuming, and more often than not, actual time is written off as unrecoverable.

As a fund accountant myself, there is nothing worse than spending a whole day entering all of the data, then having to sort through all of the capital gains reports to ensure that everything is accurate. Unfortunately the SMSF audit requirements generally mean that there is no "immateriality" to fall back on should you enter something incorrectly. It's even more frustrating when the "trader" has made a tiny profit, or even a loss. All that work for nothing!

Despite being limited to the ASX 300 this new platform looks fairly cost effective for those who do not have the funds to set up an SMSF.

 

[Julia]

Respectfully Julia, if you were completing 200 trades in an SMSF you'd be paying $20 a pop to the broker alone.

Equally respectfully, that's a good point. However, if I were doing 200 trades p.a. I wouldn't be paying $20 each for them!

 

[sptrawler]

I run an SMSF with accounting software. This enables the lay person to input their own data, the software does all the accounting.
Then zip it up email it to the auditor and Bob's your uncle.

 

[nulla nulla]

You should not assume that because I expressed what I pay as a % of the value of the fund, the accounting charge is formulated on that basis. It is absolutely on an hourly basis, the work involved, and changes e.g. according to the volume of trades.

You also need to remember that SMSF's are required to be audited by someone other than the accountant who prepared the tax return, so the return is sent out to a separate auditor, whose fee is usually around $500 or $600.

What I pay also includes any and all communications and advice from my accountant as I may ask for during the year. Don't underestimate the value involved here.
Many accountants will charge separately, around $60, for any email or phone call.

You can easily pay up to $5000 for a SMSF tax return and audit at some of the big firms.

In the first instance, nothing I have posted is directed at you. However, I should correct my comment that 0.1% - 0.2% is excessive, it is probably cheap, too cheap for a portfolio worth less than $1,000,000.00. (1% - 2% would be excessive).

If there was less than $1,000,000.00 in the portfolio at 0.1% to 0.2% the accountant would received $1,000.00 to $2,000.00 maximum. It is questionable whether this would adequately address; the time spent in complying with the statutory requirements; as well as the additional time spent through the year discussing aspects of superanuation legislation and any changes to the maintenance of records and preparation of paperwork for them to do the returns and facilitate the audit.

I am happy pay a reasonable hourly rate.

Have you ever actually seen a SMSF's prepared financial statements, minutes, etc involved in the tax return? The audit papers? The ATO set down what imo are very demanding criteria about how the actual figures must be presented. It is not remotely like your ordinary tax return.

Yes, I have. We liaise closely with our accountant (and his staff) and have been advised what is required from us by way of minutes of meetings, SMSF transaction records and objectives of the fund for us to be incompliance.

Equally respectfully, that's a good point. However, if I were doing 200 trades p.a. I wouldn't be paying $20 each for them!

Perhaps brokerage costs per transaction are relative to the size of the trade?

 

[Julia]

Perhaps brokerage costs per transaction are relative to the size of the trade?

Yes, of course, but with volume comes discounted rate.

 

[Julia]

I run an SMSF with accounting software. This enables the lay person to input their own data, the software does all the accounting.
Then zip it up email it to the auditor and Bob's your uncle.

And that, I expect is what many people do, not just the accountants. Hence no reason for them to charge exorbitant fees.

It's a great idea. Is it pretty straightforward to use, sp?

 

[sptrawler]

And that, I expect is what many people do, not just the accountants. Hence no reason for them to charge exorbitant fees.

It's a great idea. Is it pretty straightforward to use, sp?

We started using the software because we felt it gave us some control over our fund.
The first year of running the fund, approx 5 years ago, I made up some excell spreadsheets to show the funds transactions and financial statements. Well that idea was blown out of the water when we tried to get it audited, they wouldn't look at it unless it was presented in standard accounting format.
This left us with the choice of handing the accounting over and hoping that they don't rip us off, or buying some software and inputting the data ourselves. At least that way we would know exactly what is happening.
Sorry about the long winded reply now for the answer. Is it straight forward to use? If you have some accounting knowledge it would be simple to use, unfortunately we don't fall into that categorie.
We did a 4hr traing course that the company conducts around the country, they supplied a very good reference manual, that we still refer to.
We only sit down and enter all the info once a year so we are usually rusty, but don't have too many problems inputting the data. If we used it more often it would make it easier I'm sure. However we are wrapped in it and find it great to have all your info, member statements, funds financial statements etc at the push of a button. Also there is a piece of mind in knowing that I am not relying on someone else to tell me how much money I have.

 

[matty77]

I only do probably 10 trades a year, so not that many.

Plus I don't want to put my money into something that I can only access in another 35 years time (I'm only 34), hell I might want to sell up and travel overseas next year or the year after, who knows. But I like to have that flexibility.


How does a bank perceive you holding shares like that in your super if you were applying for a home loan, would they look at it as asset or not? I doubt they would.

 

[Julia]

We started using the software because we felt it gave us some control over our fund.
The first year of running the fund, approx 5 years ago, I made up some excell spreadsheets to show the funds transactions and financial statements. Well that idea was blown out of the water when we tried to get it audited, they wouldn't look at it unless it was presented in standard accounting format.
This left us with the choice of handing the accounting over and hoping that they don't rip us off, or buying some software and inputting the data ourselves. At least that way we would know exactly what is happening.
Sorry about the long winded reply now for the answer. Is it straight forward to use? If you have some accounting knowledge it would be simple to use, unfortunately we don't fall into that categorie.
We did a 4hr traing course that the company conducts around the country, they supplied a very good reference manual, that we still refer to.
We only sit down and enter all the info once a year so we are usually rusty, but don't have too many problems inputting the data. If we used it more often it would make it easier I'm sure. However we are wrapped in it and find it great to have all your info, member statements, funds financial statements etc at the push of a button. Also there is a piece of mind in knowing that I am not relying on someone else to tell me how much money I have.

Many thanks for helpful reply, sp.

I only do probably 10 trades a year, so not that many.

Plus I don't want to put my money into something that I can only access in another 35 years time (I'm only 34), hell I might want to sell up and travel overseas next year or the year after, who knows. But I like to have that flexibility.

This is the totally logical reason a lot of people don't want to put too much into Super when retirement is so far away. I agree with you. Better to pay a bit more tax for now.

How does a bank perceive you holding shares like that in your super if you were applying for a home loan, would they look at it as asset or not? I doubt they would.

Don't know, but it's an interesting question. If, say, you wanted to borrow about a third of the value of your super, what would the banks' view be? Someone will know.