DIY Super

The other way you can look after your super is by doing it yourself. Do It Yourself superfund’s, or DIY as they are more commonly known, involve setting up your own self-managed superannuation fund which will give you the flexibility of choosing exactly where to invest your own money. The current level of these superfund’s in Australia are 300,000 and are being used by almost half a million Aussie’s. Their numbers are on the rise due to their investment flexibility and because they are typically more tax effective for the investors that utilize them.

While the idea of running your own DIY super fund may seem appealing to you, there are a number of things you must first consider firstly because a DIY is not for everybody. The most important consideration is your knowledge and experience of investing, financial planning and the way DIY super works. There are many requirements and other drawbacks for setting up a DIY fund:

1. DIY or self managed super funds must contain four or less members. Within this fund each member becomes a trustee to the fund. The members of such a fund are not allowed to be employees of each other unless they are related and then they cannot receive any form of payment for their role as a trustee.
2. DIY or self managed super funds must pass what is called a sole purpose test. This test ensures that benefits from any investments cannot be derived prior to a members retirement age. This is the way that the Government and Tax Office deter everyone from switching to DIY superfund’s purely tax reasons.
3. The superannuation provisions which all self-managed super funds must comply with – as detailed in the Superannuation Industry (Supervision) Act (SIS Act) introduced in 1993 to supervise the superannuation industry. Contributions and earnings which fail to comply with the SIS Act can result in tax rates of more than 3 times the normal 15% rate. The most common breaches include a failure to pass the sole purpose test, failure to separate super and personal assets and using the money from the fund for personal or business related purposes.
4. By running a DIY managed super fund there are also a number of costs involved which include setup costs and annual fees and charges for accounting, auditing and ASIC lodgment fees. The average cost in establishment fees is around $1,000. While the annual fees in maintenance of the fund can be about $2,000. Because of the significance of these fees, it would be silly to have a DIY fund if the value of the fund has such a small value as the costs would far outweigh the benefits.
5. Some DIY funds can trick investors into believing that they have produced strong returns when in fact they have not. They do this by not factoring in the associated fees and costs of running the fund and by producing return figures return figures straight off the market. It is important that you always ask for investment performances figures factoring in what you have paid the fund managers to ensure that you gain an accurate return figure on how the DIY fund is performing. If you feel that this figure is unacceptable, then you can choose your next course of action.