SMSF mistakes are more prevalent than you may imagine. The Australian Tax Office reports that self-managed superannuation funds account for 30% of all super assets. The average SMSF member balance is $456,000 and the do-it-yourself scheme has gained much popularity in recent years. While SMSFs offer a great deal of control and flexibility, the fact remains that managing the fund is challenging, particularly with the numerous and constantly changing rules.
1. Accessing their SMSF early
Illegal early access is a cause of headache for the ATO, but purposeful breaches aside, some members have mistakenly withdrawn money from their super account while doing online transactions on their smartphones. The only solution is to ensure that you keep your savings separate from your SMSF and exercise care when transacting online.
2. Being unnecessarily active as they approach retirement
Limiting your investment decisions as you get closer to receiving your pension can help you avoid emotional mistakes as you get closer to retirement. As you get older its tempting to try and either take on more risk than you would usually in order to help boost your final balance, or be overly conservative, fearing an untimely sell-off. Trustees should remain consistent with following a disciplined long term strategy that will serve them well, rather than trying to outsmart the market.
3. Making administrative errors
Trustees divide their time every week planning and implementing their investment strategy, and administering their fund. Unfortunately, many are unable to reach a healthy compromise between the two, sometimes spending too much time on admin at the cost of developing a solid investment strategy, and sometimes taking administrative duties too lightly, inevitably leading to contraventions. According to the ATO, the most common admin-related contravention is failing to return paperwork within the established SISA deadlines.
4. Not reviewing their investment strategy periodically
Your SMSF investment strategy is a policy document that is required to be reviewed on a regular basis. Best practice is for it to be reviewed annually, with a minute of the meeting documenting that the strategy has been reviewed, and documenting any changes to the policy. An annual review is necessary; more frequent assessments are ideal. Besides the material aspect of investment, frequent reviews assist with compliance-related actions, such as notifying the tax office of changes in SMSF membership, the death of an existing member, retirement of a member or addition of a member.