Australia’s superannuation system will develop into two main streams during 2013, both of which have significant but very different benefits, says Jonathan Philpot, wealth management partner at HLB Mann Judd Sydney.
“We will likely end up quite quickly with a super regime where the vast majority of superannuation savings are held either in a self managed superannuation fund (SMSF) or in a MySuper product.
“In my view, these two options will cover the needs of most Australians. Indeed, I would encourage people to weigh up the benefits of MySuper against those of an SMSF, as the self-managed super approach is not for everyone.
“At HLB Mann Judd, we believe people should have at least $300,000 in assets, in order to establish a SMSF. After this point they can become very cost effective to administer.
“One of the options available to trustees and a major advantage of MySuper is its “life cycle investing” approach. This means that members have different allocations between growth and defensive investments based on their age. Younger members have more aggressive investment allocations and as they get older, the balance will move towards more defensive investments. This is a good outcome, given that very few people change their investment option from the default.
“Indeed, with its low cost, no investment choice, automated insurance cover, I believe MySuper will be better solution than many current default super products.
“In addition, all MySuper members will have death and TPD cover unless they opt out of the cover. The level of cover and cost will now largely be determined by age and also sex and occupation.
“At the same time, the SMSF approach is very attractive to many and will continue to grow, particularly in the 30s and 40s age group.
“The ability to manage investments to suit individual needs, and the flexibility of being able to transfer business property into a SMSF, continues to make it very attractive.
“However, one risk with SMSFs is that there is perhaps too much choice with investment options. I am concerned with the large cash and fixed interest holdings of many SMSFs.
“Nonetheless, well-managed SMSFs can be the most beneficial option for some people. Particularly with the reduced concessional contribution limits, families are increasingly utilising the non-concessional contribution limits each year in order to build up their super balances within an SMSF structure.
“In many respects, SMSFs and MySuper are very different super types, however between them they suit the majority of us who have super,” Mr Philpot said.
HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and part of the HLB Mann Judd Australasian Association.
For more information please contact:
Jonathan Philpot – Phone: 02 9020 4196
29 January 2013