One of the longest-term decisions many investors will make is whether to setup a self-managed super (SMSF) fund with individual trustees or a corporate trustee.

It is a decision that could have financial and personal implications for as long as the SMSF remains in existence including when a member leaves the fund and/or a new member joins.
 
Indeed, some SMSF members would not fully recognise the key differences between having individual trustees or a corporate trustee until a member dies. Of course, this consideration is particularly pertinent given the ageing of the population.

Under superannuation law, all members of an SMSF must be either individual trustees or directors of a corporate trustee of the fund. An SMSF with individual trustees must have at least two individual trustees yet a corporate trustee can have only one director.

The tax office’s latest-available SMSF annual statistical review records that 92 per cent of the SMSFs established in 2013/14 had individual trustees – a rise of two per cent over three years.

As the tax office observes, ‘there has been a consistent shift away from corporate trustees’. This could partly be attributable to some investors focusing on what may seem the easiest and most hassle-free way to setup an SMSF – perhaps without weighing-up the long-term differences between the two types of trusteeships.

Others planning an SMSF would no doubt carefully compare the features of each type of trustee – perhaps in consultation with their financial planners – and then choose the best perceived course for their circumstances.

Interestingly, 77 per cent of SMSFs in existence on 30 June 2014 had individual trustees. In other words, 33 per cent have corporate trustees against 8 per cent for new SMSFs.

A proportion of SMSFs would have begun with individual trustees and later switched to a corporate trustee, perhaps after the death of a member.

The tax office, as regulator of self-managed super, urges would-be SMSF members to understand the differences between the two types of trustees. It could be worthwhile gaining advice about the issue from an SMSF specialist.

On one hand, individual trustees – with each member acting as a trustee – can cost less to establish because a company is not setup to act as a trustee. However, the ATO points out that there are other considerations apart from initial cost.

An SMSF with individual trustees must hold its assets in the name of all those individuals as trustees of the fund. If an individual trustee is replaced, the names on the funds’ ownership documents must also change. ‘This can be costly and time consuming,’ the tax office warns.

By contrast with a corporate trustee, assets are held in the name of a company as trustee. If trustee directors change, the assets remain in the name of the same company.

If a fund has two individual trustees and one dies, the fund must appoint another trustee to continue as an SMSF. (This is because of the requirement that a fund must have at least two individual trustees.) Yet if an SMSF has a corporate trustee, a deceased trustee director may not have to be replaced because a corporate trustee can have a single director.

In other words, a corporate trustee will continue to control an SMSF and its assets after the death or incapacity of a member.

To find out more about establishing an SMSF or to discuss your current SMSF trusteeship, speak with your Leenane Templeton financial planner on 02 4926 2300

The post An SMSF trustee decision for the long, long haul appeared first on Newcastle Financial Planners & Financial Advisors.

The Superannuation Complaints Tribunal's latest annual report shows that more than half of the complaints they received for the 2010-11 year involved superannuation administration issues.

Additionally, 33% involved the distribution of death benefits with a further 13% relating to the payment of disability insurance claims.

Some of the administration issues included:

• delays in the time taken action switches between investment options;
• delays in rolling money over to another superannuation fund;
• insurance premium deductions;
• investment returns;
• delays between the date of resignation or retirement and the rollover or payment of the benefit

"These are all further reasons why self managed super funds are a premium option for consideration" commented  Andrew Frith of the Self-Managed Super Specialists.  "When you are the trustee and the member of your self managed super fund the fund and the funds available for retirement are top of mind, not delegated to some large administration organisation which may or may not even be in Australia."

Speak with our award winning Newcastle financial advisor and self managed super fund expert  Andrew Frith
 

Do you have, a self-managed super fund? or are you thinking about a SMSF?   Leenane Templeton are running a SMSF Trustee Seminar on 17 October 2012.  The SMSF Seminar aims to give the trustees or would be trustees an insight into the issues and strategies available in self-managed or family superannuation funds.  Guest speakers will include Paul Chin – Senior Investment Analyst at Vanguard Investments and Andrew Frith, CEO of The Self Managed Super Specialists.  For more details email events@leenanetempleton.com.au   

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See article below

"Whose interests does superannuation fund consolidation serve?

6 April 2011 | by Mike Taylor
 

Super funds are experiencing another round of mergers and consolidation, but whose interests are really being served? And will the funds become too big to fail?
Less than a decade ago, this magazine published a feature titled ‘Top 300 Superannuation Funds’. Super Review stopped publishing the feature when the number of funds that fulfilled the criteria of ‘top’ declined below 100.

To be included in the original Top 300, a superannuation fund needed to boast a given level of membership and a given level of funds under management (FUM). In the early days, only the top 20 or so of the Top 300 funds could be expected to have more than $1 billion in FUM.

Times have changed. These days few mainstream funds have less than $1 billion in FUM, and the non-corporate funds that do are inevitably earmarked for amalgamation.

But it is not natural market forces that have been responsible for the decline and fall of Super Review’s Top 300 series. It has been Government policy and regulatory initiatives – the most recent of which is giving rise to a further round of negotiations between superannuation funds, and has been prompted by the looming expiry of tax relief measures which have made such mergers more attractive.

Prior to the tax relief measures, the major driving force behind superannuation fund consolidation in Australia was the Australian Prudential Regulation Authority’s (APRA’s) imposition of a new superannuation fund licensing regime – something which, according to APRA chairman John Laker, saw a dramatic drop in the number of superannuation trustees.

In 2007, Laker told a meeting of the then Investment and Financial Services Association that “at 30 June, 2004, the day before licensing began, there were around 1300 trustees. At 30 June 2006, there were just over 300 licensed trustees”.

And he made clear that APRA itself was a major beneficiary of the reduction, saying: “This consolidation will impact on the way in which APRA allocates its resources. In the past few years we have allocated a greater proportion of our resources to superannuation to handle the licensing transition. I expect that from the next financial year we will see a redeployment of some resources back to the other regulated industries.”
More recently, the chairman of the Cooper Review into superannuation, Jeremy Cooper, has pointed to the desirability of fewer but larger funds, citing the experience in Canada and the ability of large funds to directly invest in major infrastructure.

The evidence is clear to see: the consolidation that has occurred in the Australian superannuation industry has occurred as a result of Government policy initiatives rather than by market forces.
What is more, the nature of the rules about superannuation fund mergers and amalgamations means that individual members do not really have a say. It may be members’ money in the superannuation funds, but it is the trustee board members who decide who will manage it.

Where the most significant recently proposed fund merger is concerned – Westscheme and AustralianSuper – the views of the members of Westscheme will not be canvassed. Notwithstanding the notoriously independent views of West Australians, they will be asked to take on trust the benefits that will flow from being taken under the umbrella of mega-fund AustralianSuper.

There exists a lingering question about whether ‘bigger’ actually equals ‘better’, and over the past decade there has been plenty of evidence to suggest that while some very small funds may struggle, many mid-size funds manage to do perfectly well in terms of investment performance and delivery of services to members.

There is no doubting that AustralianSuper has an admirable track record, but it is worth noting that it has not been regularly topping the charts maintained by the major ratings houses. Indeed, the top performers have inevitably been larger mid-size funds.

Perhaps the most disturbing fact to emerge from an examination of the consolidation that has occurred within the Australian superannuation fund industry over the past decade is that beyond Government policy, the major consideration for superannuation fund trustees has been the rising costs associated with regulatory compliance.

Almost without fail, trustees of funds that have chosen to merge with larger funds have cited rising regulatory compliance costs and the consequent need for better resourcing.

Fewer but larger superannuation funds will certainly make life easier for Australia’s regulators and would certainly seem to fit with the views of people such as Jeremy Cooper, but it is uncertain whether the best interests of members will ultimately be served.

The Government may well end up creating institutions that are too big to fail. "

Article written by Mike Taylor

For more information about superannuation please contact our specialists or visit our main websites for:

Newcastle Financial Advisors

Newcastle Accountants Leenane Templeton

Newcastle Accountants

The post The Changing Face of Superannuation appeared first on Newcastle Financial Planners & Financial Advisors.

According to Andrew Frith of the Self-Managed Super Specialists, headquartered in Newcastle NSW, it was refreshing to hear the Commissioner of Taxation, Michael D'Ascenzo, in his speech to the SMSF Professionals Association of Australia (SPAA) in February 2011, say that the ATO's "consistent message both to our people and to the community is to take care of family, friends, community and property first.  We can sort out tax and super issues later."

This was said following the devastating floods in Queensland, Victoria and Western Australia.  We have recently added the Illawarra and South Coast of NSW to this list.

One of the specific ways the Commissioner indicated assistance to self-managed super funds is where the fund may have acquired what are now flood or cyclone damaged buildings, in which case the ATO, in determining what is a repair or an improvement, whilst not having "a discretion to treat what is an improvement to be repaired, or a repair to be an improvement", they "will not be seeking to make fine distinctions having regard to what is available to repair what has been damaged".

The Commissioner went on to say "In financing repairs or incurring other costs, SMSF trustees may need to borrow funds and if SMSF trustees contravene the limited recourse borrowing provisions due to the natural disasters experienced Australia-wide, we would be favourably inclined to exercise the Commissioner's Discretion under section 42A(5) of the Superannuation Industry (Supervision) Act 1993 (SISA) to continue to treat the super fund as complying. 

Mr D'Ascenzo added "We are currently reviewing this matter with APRA and Treasury to ensure no unintended consequences arise."

Andrew Frith commented further how important it is for the taxpayer to know that there is human thought and a caring attitude behind the enormous bureaucracy that is the ATO.

Andrew Frith is the Chief Executive Officer of Leenane Templeton The Self Managed Super Specialists Pty Ltd.  Located in Newcastle, NSW, Australia.   Visit  Self Managed Super Funds web site for further information or visit our Newcastle Financial Planning Self Managed Super Fund Page.

The post SMSF Trustees appeared first on Newcastle Financial Planners & Financial Advisors.

The main difference between a SMSF and other types of superannuation funds is that the members of a SMSF are also the trustees, or directors of a corporate trustee.  This means they are required to prepare and implement an investment strategy for their fund, accept contributions and manage the payment of benefits.

Self Managed Superannuation Funds also provide a broader investment choice than other super funds, with options such as direct property, managed investments and direct shares included.

The members of a SMSF must appoint approved auditors, and may also choose to involve taxation agents, accountants and financial advisors as well as administrators.  However, the ultimate legal responsibility for the fund's ongoing compliance rests with the individual trustees.  Click here for more information on Self Managed Super Funds.

A Self Managed Superannuation Fund must be maintained for the sole purpose of providing retirement benefits to member.  Investments must be entered into with a view to achieving a commercial rate of return, not for lifestyle or private purposes

• A SMSF must have fewer than five members
• All members must be trustees
• If your SMSF is a single member fund, you will need to appoint a company as trustee or a second person to act as an individual trustee
• No member of the fund can be an employee of another member of the fund, unless those members are related
• No trustee of the fund can receive any remuneration for services as trustee
• A SMSF can not lend money or give financial assistance to a member
• The SMSF can not acquire an asset from a member of the fund, or any other person related to the trustee, with the exception of listed shares, managed funds, and business real property.
• SMSFs are prohibited from borrowing.  There are some limited exceptions.
• Trustees are required to set out the fund's objectives and to formulate an investment strategy to show how those objectives will be met.  This must be in writing and regularly reviewed.

WHAT ARE THE ADVANTAGES OF SMSFs?

Advantages include:

• Increased control over your retirement funds and how they are invested
• Wider investment choice than public offer funds
• Your SMSF can move with you from job to job, and from generation to generation
• Affords opportunities for estate planning and benefit payments

ARE THERE ANY DRAWBACKS?

Drawbacks include:

• Each trustee bears a high degree of responsibility to ensure all trustee duties are exercised in the best interest of fund members
• There is a risk of tax penalties for non-compliance, so it is necessary to have sufficient knowledge and expertise
• Running  a SMSF can be time consuming and demanding
• SMSFs incur a range of additional costs, eg tax and regulatory return, administration, auditing of accounts, supervisory fees

For more information visit our main SMSF Site at www.self-managedsuperfund.com.au

or visit our pages on the site at http://financialplanner-newcastle.com.au/self-managed-super-funds/

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