Making sure your SMSF is working for you



Why you should review your SMSF’s performance

A plan without action is simply wishful thinking! Your SMSF shouldn’t be left up to chance. If the last couple of years have taught us anything it’s that the financial climate is always changing. Sometimes these changes will present new opportunities, other times they might impact existing plans. Therefore, it’s vital you review your fund to ensure it’s still relevant and appropriate considering the current financial environment.

Remember, nothing should be set in stone when it comes to your financial future because plans should evolve over time. Think of it as a constant process of Plan, Act and (Re)Evaluate while also staying up to date with ongoing legislative changes.


When you should review your SMSF

Many people start an SMSF with the goal of buying property, but often they lack the planning for other investment types. With ongoing contributions and the passage of time, cash accumulates in the fund which typically earns little to no interest. This money should be put to work.

Often the property purchased in the SMSF is a ‘set and forget’ investment undertaken following advice from an independent property specialist. The strategy usually relies on capital growth over time and typically seeks a positive cash flow in a relatively short period. It’s important to review the property’s (or properties’) performance at regular intervals to ensure it’s still hitting its objectives.

Another key moment to perform a temperature check of your super and contribution strategy is when you change jobs, income level, or other major life milestones. As you get closer to retirement age, various strategies will become available to you so ultimately it also pays to review your super situation before turning 55, 60, 65 and prior to retirement.


How to assess the performance of an SMSF

Every fund should have an investment strategy matched to the member’s risk profile and life stage. A good place to start is by comparing the asset allocation to the plan and reviewing its performance against that plan and industry benchmarks.

As mentioned, funds often accumulate cash from contributions and investment earnings so it’s paramount that this is cleverly invested – a fund with excess cash is likely to be underperforming.

Additionally, it’s also essential to review the investment strategy, particularly when there’s significant change in the financial environment such as the recent consecutive interest rate rises.


Knowing the benchmark for a performing super fund

You should be in a better financial position thanks to your SMSF. Your fund needs to achieve results in line with the investment strategy you set out to achieve, and any non-property assets should be matching, or even outperforming, an equivalent retail fund.

In addition to return and cashflow, there are other metrics you should regularly review including your beneficiary details, the contribution strategy, the investment strategy, and lending specifics.


Why regularly reviewing your SMSF loan makes sense

Few institutions offer SMSF lending and they  tend to be a little complacent with their SMSF customers. However, new lenders are entering the market so there is an opportunity to review rates and seek out a better deal. Just like you should with your own home loan, it’s equally important to review the lending rates of your SMSF property every two to three years.

While doing this review, take time to analyse the performance of the property in conjunction with the lending to ensure it’s still the right strategy for your fund.

Members should also keep in mind that SMSFs are subject to Limited Recourse Borrowing Arrangements, which are either fixed or variable loans which don’t offer redraw or offset facilities. Typically, they also have higher deposit requirements and interest rates compared with normal lending.


How you can contribute to your SMSF


Super Guarantee Contribution (SGC) – employers now pay 10.5% super to any employee qualifying for super contributions on income up to a quarterly cap.

Concessional Contributions – The first $27,500 of contributions (including any SGC) are taxed at a lower tax rate (usually 15% or 30% if your income is above $250,000). You can make additional contributions to top up your SGC component to the $27,500 cap and receive a tax deduction.

Carry Forward Concessional Contributions – Since July 1, 2018, if your super balance is below $500,000, then any unused concessional cap ($27,500 less the amount actually contributed in the year) can be carried forward for up to five years and contributed during that time as a concessional contribution.

Non-Concessional Contributions – Eligible Income Earners can contribute up to $110,000 per year without being able to claim any tax deductions.

Bring Forward Non-Concessional Contributions – Subject to your age and super balance, you can bring forward up to three years of Non-Concessional Contributions up to $330,000.


The pros and cons of allowing up to six members to contribute to a SMSF

By having multiple members contributing to one fund, resources can be pooled to allow for larger and potentially more lucrative investments. With more member funds, the SMSF can achieve diversity in its asset allocation and because administration costs are shared across multiple members, they can achieve cost savings too.

When banding together, however, there are certain things to take into account including the ages and superannuation needs of all members. For example, a fund with older members who are in a pension phase – combined with younger members in accumulation phase – needs to have sufficient liquid assets to meet its cashflow requirements to fund those pension payments.

Multiple members may also have differing opinions on investment strategies so it’s important to put an agreement in place ensuring minimal disputes and a clear process if conflicts do arise.


As specialists in SMSF, Landen can help you review your current SMSF setup and create strategies to help you grow your super. Call 1300 526 336 or click here to find out more.