Chapter 1
Is DIY Super Right for You?
In This Chapter
Taking control of your super — the government’s grand plan
Testing your DIY super resolve — ‘Super 6C Challenge’
Fulfilling the SMSF membership rules
Steering your DIY super CART
Building, and growing, a super duper investment portfolio
Planning for your tax-free retirement
T aking control has never been so popular. One of the most talked-about trends in superannuation is the spectacular growth in the number of DIY super funds — 534,000-plus funds and counting.
Although each DIY super fund (officially known as a self-managed super fund) can have no more than four members, these humble structures now control nearly a third of all superannuation wealth in Australia — roughly one in every three super dollars is held in a DIY super fund! Even more remarkable, industry researchers DEXX&R report that DIY super funds control around two-thirds of all super money financing retirement pensions. (A pension is an income stream payable from a superannuation fund.)
Survey after survey confirms that the number one reason motivating an individual to set up a DIY super fund is the desire for control. Of course, other reasons for starting a DIY super fund stand out as well, such as cost considerations and dissatisfaction with the investment performance of an individual’s existing large super fund. Typically, a DIY super trustee wants to take control of their super savings and run their own pension in retirement. As a trustee, you’re responsible for looking after your retirement savings and ensuring your DIY super fund complies with the super and tax rules, and the investment rules.
This chapter gives you a panoramic view of the world of DIY super, including where DIY super fits into the government’s retirement policies. I set you my ‘DIY Super 6C Challenge’, which enables you to stress-test your decision to run your own super fund. I explain the two types of DIY super funds, and I outline the main tasks that you take on as a DIY super trustee. As a special finale to the chapter, I present you with your own retirement super star — a guide to the exciting tax-free super world that you enter in retirement.
The official term for the most popular DIY super fund (a super fund with four or fewer members) is a
self-managed super fund (SMSF) and the terms ‘DIY super’ and ‘SMSF’ are used interchangeably in this book. I explain this terminology in more detail in the section ‘What Does a DIY Super Fund Look Like?’, later in this chapter.
Taking Control is a RIPper Plan
Taking an interest in your super savings is always a good thing. Stepping into the role of superannuation trustee, however, is lifting your interest to a whole new level. Taking total control of your superannuation benefits isn’t necessarily a difficult task, but it does require a different way of thinking; after all, the buck stops with you — every time — as a DIY super trustee.
In the good ol’ days (think right up to the 1970s), Australians generally worked from the age of 15 until the age of 65 (unless you were a married woman and then you may not have been allowed to work at all). Your employer paid you a wage that hopefully enabled you to buy a house and feed the kids, and that helped you prepare your children for a life at least as good as, and hopefully better, than your own.
If you were still alive at age 65, you were entitled to receive the Age Pension (at age 60 if you were a woman) — most retired Australians relied mainly on the Age Pension. If you were one of the very lucky, and loyal, employees of a large company or a government department or authority, then you were likely to receive a guaranteed superannuation pension for the rest of your life. After you died, and if you were fortunate, your wife — until relatively recently, only men were entitled to join these types of company or public-sector pension schemes — would continue to receive a reduced pension from the company or public sector fund.
Today, some lucky Australians still receive a lifetime pension from a public-sector fund or corporate fund. Everyone else has to fend for themselves. The federal government has made it clear that saving for your retirement is your responsibility, although it has thrown in a few tax incentives to make that task a lot easier (for info on these incentives, see Chapter 13).
The government’s grand plan — Australia’s Retirement Income Policy (RIP) — has four limbs that the federal government is banking on to raise the standard of living of Australians in retirement:
