Superannuation Choice has finally arrived, after 8 years of our legislators' deliberation, and it will become effective from July 1, 2005.
After the policy of Super Choice was first announced in 1996, passed the House of Representatives in February 1999, but failed to pass the Senate on several occasions, finally on the 23rd of June 2004, the Superannuation Legislation Amendment (Choice of Superannuation Funds) Bill 2003 was passed by the House of Representatives and the Senate.

What does Super Choice mean?
From the 1st of July 2005, Western Australia is not going to be the only state with unlimited choice of superannuation funds. Almost 5 million Australians will have the same basic consumer right as current Western Australians (except for public servants and people not covered by the state industrial award), to consolidate their superannuation monies and choose where, and how their money is going to be invested. Employers’ contributions will therefore be paid into a fund nominated by the employees, including a complying Self Managed Superannuation Fund.
The Choice of funds is expected to increase the competition amongst superannuation funds, culminating in lower fees and increased savings for the members. It should also improve overall standards of the service and increase the range of investment options. Ultimately, the Choice will encourage and motivate consumers to start thinking and educating themselves about retirement, saving and investing before it is too late, i.e. once they retire, or even worse, after they are retrenched close to the retirement age and left with a lump sum payment in their hands. It is expected that the government will organize educational campaigns to ensure that people have enough information to make a choice between the different options available.
The recent industry push for disclosure of fees and charges, fund managers' charges for managing investments, is also one of the ways to help an educated investor, alongside fund's investment performance, making the right decision when investing their retirement nest egg.

This brings us to another point, being the role of a Self Managed Superannuation Fund (SMSF) under the Choice regime and the question of “to SMSF or not”. There are all sorts of schools of thought when it comes to SMSFs, advocating SMSFs or strongly criticizing them, and pointing to several risk/compliance factors a trustee is faced with, in a daily management of a SMSF. From my own experience, managing my own SMSF, and from our clients’ experience, there are pros and contras for having a SMSF as a vehicle for saving for retirement.

Before embarking on a SMSF, one needs to make sure that one not only understands all pros and contras of managing a DIY super fund, but also one needs to read on the subject continuously, while being a trustee of the SMSF.

One of the ways to get educated on the subject is to choose from a number of books available on the market. Another inexpensive way is to visit the ATO web site www.ato.gov.au and select superannuation pages, the excellent source of information providing definitions, specific rules and regulations to everyone from DIY investors to financial professionals such as accountants, lawyers, tax agents and similar.

For the more generic approach to the subject, the information about SMSFs is available on the SuperEasy web site, www.supereasy.com.au, under the Frequently Asked Questions (FAQ) section of the site.

Once the basics of a self managed superannuation principles are absorbed, and one starts to think about the investment strategy of the fund, the main goal should always be, as for any other investment portfolio: how to achieve a balance between a maximum investment return at the minimum risk, and not how to utilize the current tax law to minimize the tax. This is especially important for people being offered “a special” financial product, with a ”special” tax concession, or “get rich quick” scheme.

Establishing a complying SMSF is one issue, while being able to manage the fund on a day-to-day basis, is a completely separate one. DIY investor should not be afraid to seek professional assistance when it comes to investing their retirement monies under the SMSF umbrella. Attempting to minimize the professional fees and charges, associated with effective running of a SMSF, with the final outcome of the DIY fund’s performance underachievement, is far from being business savvy and managing your fund in the most effective way.
In order to assess whether a DIY super solution is for you, we have developed a simple matrix that should help you decide, whether or not you are ready to start your own DIY superannuation fund:

Question	Answer
Do you understand these terms and definitions, and their implications: SMSF, Trustee, Member, Trust Deed?	Yes/No
Do you understand what the “sole purpose” and “arm length” tests are?	Yes/No
Do you know about benefits and tax rates applicable to SMSFs?	Yes/No
Did you know that as a trustee of the SMSF you cannot pay yourself any management/admin fee for managing the fund?	Yes/No
Do you know how much money you currently have in your superannuation, and who is currently managing that money?	Yes/No
Do you know what is the current performance of your superannuation, specifically the charges involved in running the fund?	Yes/No
Have you ever directly invested in shares of a publicly listed company?	Yes/No
Do you understand the difference between a discount and full service stock broker?	Yes/No
Do you know about benefits of a cash management bank account?	Yes/No
Do you ever read the financial section of your newspaper, or read any other investment or financial magazine/newspaper?	Yes/No
Are you willing to invest 1 hour per week to read about investing and issues relevant to SMSFs?	Yes/No

If you have answered more than one question with NO, you should spend more time on educating yourself about investing and SMSFs in particular.

Remember, nobody was a savvy investor from day one, but people wanting to dedicate a little bit more time and effort in research relevant to the ways that can maximize their super for retirement, will find the Super Choice rewarding!
Sincerely,
Zdenko Simonic
Founder & CEO of SuperEasy Pty Ltd

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Published: 13 July 2004 - Copyright © SuperEasy Pty LtdThis article is copyright. This article needs to be viewed as educational reference only. It is not intended, nor is it to be regarded, as investment/securities advice or any other advice. It does not take into account whether any particular investment or type of investment is suitable for your individual circumstances. It is strongly recommended that you seek professional advice before making any investment choice or decision.