A self-managed super fund is an enticing option for many, providing greater control and flexibility than traditional industry and retail super funds. But they can be complex, and there’s a lot to consider before you dive in head-first.

Davidsons’s SMSF specialist Simon Abbott joined radio host Rob Cameron on 94.7 The Pulse to discuss the ins and outs of self-managed super. If you’re wondering if a SMSF is right for you, check out the audio recording or read the full transcript below.

Transcript: Davidsons’s Simon Abbott speaks with Rob Cameron on 94.7 The Pulse

Rob Cameron 0:00
Davidsonsons Accounting is our station sponsor. And we are delighted to have in the studio this morning from the aforementioned accounting firm, Simon Abbott. Good morning, and welcome to The Pulse.

Simon Abbott 0:10
Good morning, Rob. Thanks for having me.

Rob Cameron 0:12
Good to have you on. We really appreciate the support of your organisation for ours. And as part of the reciprocal arrangement, we’re going to be hearing from you and other members of the group, and today the focus is going to be on self-managed super funds (SMSFs).

Simon, the company does a lot of things, but superannuation – it’s an important part of life. And as I said to you off-air some of us are prepared very well, some aren’t. And your role is to get us on track. So tell us a bit about what the company offers a customer who may be wondering where their super’s at and what they’re going to do with it.

Simon Abbott 1:35
Firstly, at Davidson’s we have a self-managed super fund compliance and advisory offering. And as part of that service, we help and assist our clients to keep on top of their self-managed super fund compliance obligations.

So, we have a number of clients who have self-managed super funds and in essence, a self-managed super fund is a type of fund that you manage yourself. So you’re responsible for all the investment decisions, and all the tax and super legislation requirements and keeping on top of those, and Davidson’s steps in to help you manage and keep abreast of those regulations because they’re quite onerous. So a big part of our offerings is to make sure our clients are on top of those things, and also planning for the future.

Rob Cameron 2:30
That’s probably the question that confused me: the self-managed aspect. And I know some people who do literally manage everything themselves, but the role that Davidson plays within that. And you personally, for someone who is probably all across the stock market and has a pretty good idea of where they want their money to be going. So where does that balance come in with your role?

Simon Abbott 2:56
That’s a great question because we’ll sit down with clients and we’re very clear about what our role is. And where we fit in typically is from a tax efficiency perspective. We want our clients to be ensuring they’re investing in the right structure that gives them the best bang for their buck from a tax perspective. And we do provide some general guidance around how their super fund is going compared to other funds – that’s benchmarked against other industry types.

But essentially, our role is to jump in and ensure they’re on top of all their obligations, and ensure that, from a tax perspective, they’re maximising what they can with the SMSF. And that’s typically around contributions, ensuring they’re on top of their limits, ensuring any minimum pension requirements are met, because there’s certainly a big tax exemption there if you are during a pension, and you’re meeting those requirements. And ensuring that from an audit perspective, as self-managed super funds are audited each year, independently, so we take care of any auditor queries that may come about without necessarily going to the trustee directly.

Rob Cameron 4:17
And depending on the age of the client, the needs will differ because some may still be working and making personal contributions on top of an employer contribution and still seeing where all that goes. But then others, of course, are retired and requiring a drip feed from that super fund back to conduct their everyday life while still making sure that it’s functioning well so that next week’s paycheck is gonna come as well! So there are all different needs. As someone in your role, I guess it’s an exciting thing, because there’s always something different going on.

Simon Abbott 4:53
Yeah, there is. And as you say, depending on your life stage, we work with a variety of clients in terms of where they’re at in their life stage – they may be what we call accumulators who are essentially getting their super fund balance up to a large enough point where they can start to draw it down in the retirement phase. But we also have clients who are in that retiree stage or in the drawdown and looking to draw down income tax effectively, but also ensuring they’ve got the liquidity to do that and they’ve got the income to support coming in from the super fund.

So as I said, our role is to come in there and ensure they’re on top of those things. And that gives a lot of clients peace of mind that they are on top of things. And we’re always very honest with our feedback and conversations to clients and say, “Hey, look, maybe this is an area you need to look at, and maybe you might need some assistance”, where Davidson’s may not be able to (like in the financial advisory space) advise about choosing particular stocks as that’s out of our wheelhouse, but we have connections that we can direct clients to, to ensure that those needs are met as well.

Rob Cameron 6:03
And the situation, I suppose, for most people coming out of employment now in their mid-60s (because I’m one of them, as I was talking to you about off-air), when super kicked in when I was a young fellow, it probably wasn’t understood well and wasn’t managed well in those early stages. So my total figure now isn’t what it probably should be.

But I guess someone who’s been with the same employer all their life and has just had these constant payments going in, it’s naturally accumulated well, and I suppose with the average of someone retiring now at 60-odd, they would probably have a million dollars in a superannuation account, but there would be a lot of people that would have a lot less than that.

Simon Abbott 6:45
That’s right. And we often get the question around, “Simon, what’s a good balance to have at my age? What can I retire on comfortably?” And there are so many variables as to what’s a good balance. And that comes down to what your desired income is, or your desired way to support your lifestyle in retirement. If you’ve got high needs, then obviously, you’re going to need a higher balance. If you’ve got modest needs, then it’s a slightly lower balance.

But generally, a million dollars for a couple in retirement is what the government would feel is sufficient. And that may fit in a couple of holidays a year. And maybe you might be able to eat out once a week. But if you want to go on a few more trips, then obviously, that million-dollar figure may need to be a little bit higher.

Rob Cameron 7:41
If that were just invested in cash these days, a million would return somewhere between $40,000 and $50,000. And if you’ve got no mortgage or rental payments, that’s $1,000 a week or thereabouts, so even with today’s busy, high cost of living, that would still give a couple in their 60s a pretty comfortable life, I would have thought.

Simon Abbott 8:01
Yeah, but as you say, inflation at the moment is quite high. So potentially, those figures still might be on the lower side. But also, the age pension, from Centrelink’s perspective, now depends on what your asset base is outside of super. But generally, you might be able to supplement some of your income from your super fund with an age pension as well, if you qualify for that. So there are definitely some options there.

Rob Cameron 8:35
I had a very scary situation pop up with a friend of mine. In my friends’ group, we were all born in 1957, so this year, we turn 67 and that is the retirement age. A fellow just rocked up after his 67th birthday to say, “Right, “Oh, where’s my pension?” And they said, “Well, you’ve probably got to wait six months”. And that’s a bit scary, and I suppose in this particular case, managing your circumstances around a pension being part of your retirement package. If you’re going to turn 67 this year, I’d get cracking on booking yourself with a pension now, after what I heard the other day.

Simon Abbott 9:17
Absolutely, Rob I can attest to that. Some clients who unfortunately did go for that for that age pension, and it took them quite quite a few hoops to jump through, which was unexpected for them. And it especially complicates things if you do have a complex structure, and a super fund by its nature is complex and Centrelink does have to try and get their head around some of the circumstances in there. So if you are approaching age 67 and you do have an SMSF, and you think you may be eligible for a part age pension, then certainly get the ball rolling early.

Rob Cameron 9:57
If you are still in employment and you want to continue that after your 67th birthday, maybe on a part-time basis, is there a figure where the pension does kick in? Or is it really complicated because of potential assets sitting behind all that?

Simon Abbott 10:11
It’s a mixture of both. But generally, it comes down to your asset position outside of super, which is the main thing. And that doesn’t include your house.

Rob Cameron 10:23
And I was gonna say – where does the family home sit into that? If that’s all you’ve got, basically, and nothing else, then you’re sort of starting at the zero base, if you like, for being eligible for a pension?

Simon Abbott 10:36
Yeah that’s right. If you have a couple of cars that might come into play a little bit. But generally, if you don’t have anything outside of super, then, depending on your super balance, as your super balance does come into play, you should be able to have some type of entitlement to a pension and age pension.

Rob Cameron 10:56
Another thing that’s popped up a little bit lately is investing ethically, a lot of people are more aware of companies they don’t want to be attached to for lots of personal reasons. And I suppose that’s something that you would be able to walk a customer through as well, because the circumstances are that a lot of the companies that are deemed to be unethical are probably the best return on investment. So if you’re going to steer away from them, you’ve got to find somewhere where you’re morally comfortable, but you’re still gonna get that return expected to balance your retirement.

Simon Abbott 11:33
Yeah, and the great thing about self-managed super is you have the choice and ability to pick and select the types of investments you want. Whereas over the years previous, with just your industry and retail options, you’d be put in a particular growth portfolio, and you may not necessarily know what type of investments are within that platform.

With self-managed super you definitely can, if you’ve got a preference, steer away from particular companies maybe ethically or if you want carbon neutral. You’ve got the choice and ability to do that. But also, if that’s one of your goals, does that align with your investment strategy and return performance to generate that income for you? So it’s kind of a balance there, as to which way you want to go.

Rob Cameron 12:27
I suppose there are plenty of companies on the ASX to choose from, and I suppose for balance, you’d want to have a little bit in each area. But can it get a bit silly, if you’re starting to involve yourself in 15 or 20 different sections of your portfolio? While you might have an investment property side, you might have a cash element, and then you’re tinkering around with lots of smaller companies on the stock exchange, you probably need to be careful that you’re not getting ahead of yourself and a bit too messy.

Simon Abbott 12:56
Yeah, with self-managed super, you need to have some guidance there. Unless you’re happy to look after those investments yourself, I mean, you may want to have a financial advisor connected with you to help you manage your share portfolio.

But generally, a good rule of thumb for diversification purposes: you may have a portion in cash or fixed interest, a portion in property and a portion in shares. Now, having shares spread across a number of different industries may help with that diversification; having 15 to 20-odd is a good diversification option. You’re not going to be very diversified if you’re just going all into one stock. Because if that dives, then that’s not a great risk mitigation strategy. So yes, to have 15 to 20. But you still need to pick the right 15 to 20 stocks. And if you’re not confident doing that, there are people who can help you.

Rob Cameron 13:57
And how many at Davidsons are working across this particular area?

Simon Abbott 14:02
That’s a great thing about my role, I get to work with a number of team members across a number of our tax and business services teams – our tax and business services teams service our business clients. And ultimately, a lot of our business clients do have self-managed superannuation funds.

So within each of those teams, I’ve got a number of team members. We’ve got 3 tax and business services teams, and I work with those guys, and we’ve got an internal audit team who conduct audits of other self-managed super funds that we don’t necessarily do the accounting work for, so we’ve also got a small team there.

Rob Cameron 14:40
So should people drop in or call the office to set up an interview, or are you happy for people to contact you direct? What’s the best way?

Simon Abbott 14:49
I’m happy for anyone to contact me directly. My direct line is 03 5244 6867, or email simona@davidsons.com.au – I’m happy to have a chat with anyone who wants to talk all things superannuation.

Rob Cameron 15:05
Otherwise, get on the Google box, find Davidsons Accountants at 101 West Fyans Street. Quite a lovely little office environment, I went down there recently for a look around. They’re a very well-known and well-respected accounting firm in Geelong. We’re very, very happy to have them as part of The Pulse family and Simon, we thank you for your time this morning.

I’m looking forward to another chat one day, and when we get you back in at some stage during the year, I’d love for you to unpack franking credits because there’s a lot of conversation in society around negative gearing and franking credits, whether they’re good bad or indifferent for a good society, and I’d love to learn more about them because they intrigued me.

Simon Abbot 15:52
Absolutely, I look forward to it!

Davidsons can help you navigate the complexities of self-managed super

If you’re interested in setting up a self-managed super fund, Simon Abbot and our team of SMSF specialists are here to help. For more information, contact us on 03 5221 6399 or via email at info@davidsons.com.au.

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Disclaimer: This information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they’re unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.