Self Managed Superannuation Funds – The Risks

Managing your own fund requires you to adhere to strict taxation laws and regulations and it is your responsibility to be aware of these to ensure compliance.

Here, we take you through some of the risks involved.

Time

Fund management can be more time consuming than you think!

So, being aware of the many significant activities required to be completed throughout the year and factoring in enough time is paramount.

Management skills

In order to manage your investments and make the right decisions, you need to have an understanding of investment markets and the skills to review your strategy for risk, insurance requirements, liquidity, solvency and diversification.

Penalties

The Australian Tax Office has a range of penalties for non-compliance of superannuation rules. Penalties will vary according to the specific breach and can be compulsory education for minor breaches and financial penalties for more severe breaches.

Being aware of these penalties is imperative!

Statutory compensation

In the case of a fund falling victim to theft or fraud, Self Managed Superannuation Funds are not eligible for compensation. So, this is something else to consider.

Dispute resolution

As Self Managed Superannuation Funds do not have access to the Superannuation Complaints Tribunal, any disputes will need to be addressed through alternative resolution options and/or through the court system at members’ expense.

Personal insurance

The cost of life and disability insurance can be quite high and possibly more difficult to secure outside of a larger superannuation fund.

For this reason, you might consider maintaining your insurance through your existing fund by keeping the minimum allowable balance invested there.

Exiting

Certain situations may necessitate the need to exit from your Self Managed Superannuation Fund. Events such as;

  • Death of a member
  • Disqualified trustee
  • Change of residency
  • Relationship breakdown

Drawing down from your fund might also reduce the balance to a level deeming it no longer competitive.

It is therefore recommended, that an exit plan be developed, usually with one of these three options in mind;

  • Converting your SMSF to a small Australian Prudential Regulation Authority (APRA) fund
  • Rolling over to a public fund
  • Meeting the specific conditions of release

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