With around 600,000 Australians managing super totalling almost $700 billion, self managed super funds offer a fantastic opportunity for accountants to add further value to their clients portfolios. We recently sat down with Distinctive Finance to discuss some of the common pitfalls SMSFs can encounter:
DIVERSIFICATION
A recent ASIC report revealed that 55% of SMSFs had more than half of their super invested in one asset type, putting the achievement of retirement goals at serious risk. It is common knowledge that a portfolio without diversification across asset types can prove risky for investors, as different asset types will perform inversely under the same market conditions. For example, and as shown in recent years, low interest rates have allowed the property market to inflate, where investments in cash would have exhibited very limited growth.
There is a further issue created by a common SMSF structure that occurs when the SMSF holder commences a pension. In order to satisfy the minimum pension requirements you’re obligated to pay the ATO determined, age-specific, minimum percentage factor amounts, or risk the pension ceasing. For example, you may be heavily weighted into one asset, such as a property, but to satisfy your minimum pension requirements, you may need to sell the property. When the time comes for you to access your pension, the property market may not be in a good position for you to sell the property which presents a challenge for many new retirees.
IMPLICATIONS OF THE NEW SMSF TAX THRESHOLD
The new $1.6 million tax-free thresholds for SMSFs has provided further complexities for SMSF trustees, but also an opportunity for accountants to demonstrate their value. As accountants, one of our primary goals is to implement strategies which minimises the taxable position of our clients. We often remind our clients that funds above this tax-free threshold will incur tax at 15% on earnings generated, which is still significantly lower than being taxed at 47% like many of our other clients in a similar wealth position. Furthermore, if a client withdraws more than their minimum pension requirement for the year, we may be able to take the minimum pension from the pension account and then the balance from the accumulation account. For example, if a client withdrew $100,000 for the year, but in order to satisfy the minimum requirements they only need to withdraw $64,000, then the balance could be taken from their accumulation account as a lump sum payment.”
THE NEED FOR STRATEGIC ALIGNMENT
The ASIC regulatory guidelines have put increasing pressure on accountants to change the way they operate. ASIC’s introduction of RG146 has put strict boundaries in place for those who can and cannot provide advice, which has limited the services smaller accounting practices can offer. Some accountants may see this is a disservice to their clients, however, as Distinct Accounting + Advisory we believe this is an opportunity to form strategic partnerships with expert financial advisers in our area so that in the long term our clients can receive a greater breadth and quality of advice.
