Australian Superannuation

[Purple]

Here is a question just for any Aussies out there.

Just before Christmas I rolled over my husband's superannuation into a new product which is ING Living Super. His employer (govt) will not allow contributions to our Self-managed Superfund.

I have been really impressed by this product - you can see the balance at the bottom of your regular INGdirect bank account, which makes it feel much more like your money. Also, for the cost of $15/month you can directly trade shares yourself ($20 brokerage). Their term deposit interest rates are the highest I can find and there is also many other funds where you can direct your balance (each attracting various mgt fees).

At the same time, I have been mired in the usual quagmire of admin associated with a SMSF and I am pretty sick of it. Also, the management and audit fees and SMSF taxes seem ridiculously punitive (costing around $950 for the year).

As far as I can see, the only investment we can access with the SMSF compared with ING Living Super is direct ownership of property. This is not something we intend to pursue in the next few years - but wouldn't rule out in the longer term.

At this point it seems like continuing the SMSF is pretty pointless and we should cut our losses, separate our SMSF contributions and have an ING Living Super account each.

Does anyone here question the benefits of an SMSF? Would you ever consider winding it up and going back to a generic Superfund?

Thanks

[marty998]

Really depends how much you have in there and what your performance is. Some people have a knack for picking good investments, some people stumble from one bad "hot tip" to the next.

SMSF's offer much more flexibility when you are in either pension phase or near death phase. If fees are you main concern (and $950 sounds pretty cheap imho) then you are not going to beat an industry fund in accumulation phase.

I would caution against owning residential property in an SMSF unless you are well diversified with other investments.

[Purple]

Thanks Marty. On the investment choice issue .... that is the reason I am thinking of winding it down since I see no difference in my investment options under ING Living Super vs my SMSF. Either way I would still pursue a mix of fixed interest, direct share ownership or ETF's.

However, I had not thought to look at the relative differences at the pension phase since it seems so far away.

[marty998]

If you are going direct shares be careful of the "double up" effect. Most default balanced options are 40% Australian shares, and are invested broadly inline with the index. Considering BHP and the 4 banks make up about 40% of the market, if you buy any of those 5 direct then your diversification gets a bit compromised.

Having said that, nothing is going to beat the banks stable earnings and dividends. The div yield after tax is pretty much twice what they are paying for term deposits.

[Purple]

Thanks Marty. That's some insight you have there.

[marty998]

aww thanks purple. Having been in the financial services industry for a while now I know a thing or 2 about how it ticks and how the average punter gets milked every step of the way.

One very well known SMSF provider clips fees from their clients 5 different ways. Everyone is lining their pockets at your expense.

[Ozstache]

Hey Purple, thanks for the heads up about the low/no feed ING super packages. I'm looking at shifting my super into something with lower fees and index-like investing and this could be it. I'm sick of paying management fees for no better performance than the good ole index dartboard!

[Purple]

Yes. We get really upset about the superfunds milking everyone. Good on ING for coming up with something which is so much better - I only wish it was available a couple of years ago.

This product gives all the flexibility of an SMSF without the cost or admin. Also, psychologically, because you can see the balance on your main banking screen, it actually feels like your own money. It is a small but powerful thing.

[AdrianM]

Hi Purple,

My wife an I have a SMSF, and to us it is all about responsibility.
We wanted control of our money not just hand it over to a faceless fund that churns it for their benefit not ours.

On fees
$950 is at the lower end of the market, ESuper is about $700 currently

Some interesting things looking at Living super
You have administrative costs of 0.75% every year just for the privileged of them holding your cash.
You pay $180 for the privileged of owning shares, then pay $20 for each side of a trade or 0.13%

We have a NAB bank account for our super "no fees"
We use bell direct for our shares $15 for each side of the trade or 0.1%

You also pay for knowledge.
One of the common mistakes is that you and your partner are the trustees of the SMSF
When correctly setup you have a corporate trustee as the owner of the super fund and you and your husband as the owner of the corporation. Seems convoluted but if you ever have to make any changes it is far simpler to make the change to the company than the SMSF.

Please remember that the whole super fund industry is based on making you think it is to hard and that you have to hand it over to them.

So punch yourself in the face and suck it up princess. Learning to manage your investments is not as simple process but if you persevere and learn how to do it you may just surprise yourself.

[bigchrisb]

I've been doing the opposite, and am in the process of setting up a SMSF.  Mainly because I want the absolute control over my investments, and I don't want the risk of my investments being pooled with others. Interesting to hear someone who has gone the SMSF route is thinking of going back?

How much work is it actually? 

[marty998]

You also pay for knowledge.
One of the common mistakes is that you and your partner are the trustees of the SMSF
When correctly setup you have a corporate trustee as the owner of the super fund and you and your husband as the owner of the corporation. Seems convoluted but if you ever have to make any changes it is far simpler to make the change to the company than the SMSF.

That's actually a gigantically important point. I used to do the books on a number of SMSF funds and 1  already problematic fund added a 3rd trustee. Every single investment held by the fund had to have its ownership name changed to reflect the new trustee. With a corporate trustee that monumental headache is eliminated.

There are other reasons which I am unqualified in expertise to answer, best you speak to the non-armchair experts

[Purple]

Great post Adrian ... and this princess loves to punch herself in the face, but I still can't tell if I should be punching because I haven't yet moved to ING or be because there is some blinding benefit to he SMSF whih I am missing.

I guess I was assuming I would basically stick to direct shares and term deposits rather than any of their funds, which means that there is no .75% mgt fees on any of the balance and only the $180 for share trading. Also, since the shares are in your own name and term deposits too, there is no additional institutional risk as compared to my SMSF ... Both are dependent on banks staying viable.

Finally, I am with esuperfund ( with a corporate trustee thank goodness) and they have been great with their service. They only charge $700 but the ATO charges SMSF's a fee of around $250 a year on top of that. There is also a truckload of paperwork involved each year.

I still can't see why, apart from direct property ownership, an SMSF is better?

What am I missing?

[AdrianM]

I still can't see why, apart from direct property ownership, an SMSF is better?

What am I missing?

I am with Chris on why. Control

Mainly because I want the absolute control over my investments, and I don't want the risk of my investments being pooled with others.

I am in complete control of my money. I am responsible for how it is invested and how it performs. There are some restrictions with SMSF on how i can invest it but not many.

Most super funds have a home country bias
http://www.investopedia.com/terms/h/home-country-bias.asp#axzz2JcjA5tss

Will ING allow you to open a trading account - Safety deposit box - Bank account in another country?

I know my SMSF does.

[Purple]

An international bank account would be a fantastic tool and i had never thought to look at whether i can access that with esuprrfund.

I will certainly look at it now.

That is certainly a huge plus cf ING and I thank you Marty, Chris and Adrian for your insights.

On the pooled investments ... It is a good question which I can't answer yet with respect to ING shares ( I guess the key question is: do you get your own chess registration when you buy your shares through your ING account, no documentation of recent purchases has arrived yet so tbd).

[arrow1963]

I know that this is out of left field, but if you're planning on being an 'indexed' investor Australian Super has an 'indexed diversified' management plan that is 70/30 stocks/bonds, and has an MER of 0.09%.  That's going to be cheaper than anything you can do with LICs or ETFs.  They also have the ability to trade individual stocks with something less than half of your account.

If you're planning on buying individual stocks or property, then that won't work.  But I don't think you'll find any cheaper way to have your money managed in Australia.

[bigchrisb]

Hmmm, that option does look like a very low cost option.  I'm still cautious about having my money pooled with others and the loss of autonomy, but I'll have a look a little closer.  I can't find if they have admin fees above the investment fees? 

[bigchrisb]

I've had a bit more of a look at that index diversified option with Australian Super.  Agree that the MER is very low. However, it also has 19% of assets in fixed interest, and 19% in cash.  For me, I want my old man money 100% in growth assets, so doesn't hit the right asset allocation for me.  However, if you were after an asset allocation matching this, and are OK with being pooled in a large fund, it looks like a pretty good option.

[Purple]

As an update - with a few months of knowledge, I am less impressed with the ING product. It is not terrible, just nowhere near as good as a SMSF with respect to flexibility and control.

The issues are, there is a limit on direct share purchasing of 50% of your balance (although their admin systems were not tight enough to prevent us investing most of it straight away in direct shares and they subsequently have been requesting that we sell down). This is obviously designed to push you to higher cost managed products they have. Also, you do not receive direct Chess registrations - so it is pooled. It is also not clear how they will deal with taxation issues (i.e. capital gains on direct shares). Additionally, their documentation and disclosure is inadequate in dealing with many questions on the mechanics of what you can do, how the taxation issues are dealt with and administrative details.

Overall, it was too good to be true that a retail product could offer the flexibility and control of a SMSF without the administrative overhead or costs. I am now very happy we have our SMSF and will periodically rollover funds from the ING to the SMSF to maximise its benefits.

Thanks to the commenters for their insights. You were correct - SMSF's provide more control.

[Ozstache]

I appreciate the update Purple, thanks.