Written by Robin Bowerman, Head of Corporate Affairs at Vanguard/Board Director of the SMSF Association
Self-managed super funds (SMSFs) have increasing unmet needs for advice about having a regular retirement income, investing in retirement and estate planning.
The 2019 Vanguard/Investment Trends SMSF Report estimates that 145,000 SMSFs have unmet needs for advice on post-retirement planning while 80,000 SMSFs have unmet needs for estate-planning advice.
This equates to almost a quarter of SMSFs having unmet needs for post-retirement advice – based on the number of funds in existence at the time at the time of surveys by specialist researcher Investment Trends. And 13 per cent of SMSFs have unmet needs for estate-planning advice. These percentages would be higher among funds with older members.
Further, the research found that 11 per cent of SMSF trustees had concerns about the ability of other members to manage their super funds following their death or serious illness.
The recognition by so many SMSF trustees that they need professional guidance with their post-retirement and estate planning is driven by an array of factors. These include the waves of baby boomers nearing or already in retirement, the large proportion of super retirement assets held by SMSFs and greater longevity.
While almost half of SMSF members were aged over 60 at June 2018, more than a fifth were over 70, according to tax office statistics.
And SMSFs hold 56 per cent of overall superannuation assets invested in retirement products, reports the Superannuation Market Projections Report 2018, published earlier this year by consultants and actuaries Rice Warner. Estate planning
A starting point for super estate planning for SMSF members (as with members of any type of super fund) is to understand who is eligible to receive their superannuation death benefits. Another fundamental is to understand how different eligible beneficiaries may be taxed differently.
Superannuation benefits cannot be left indefinitely in an SMSF following death – even if the beneficiary is a surviving spouse and a member of the same SMSF. The amount must be paid out as a lump sum or continue to be paid as reversionary pension.
As part of their estate planning, many SMSF trustees prepare for the possibility that the most active member of a fund dies first. This is particularly an issue for two-person SMSFs where one member may be much more involved with their super.
Surveys for the 2019 Vanguard/Investment Trends SMSF Report included asking SMSF trustees to name the “hardest aspects” of running an SMSF. Their responses – most being relevant for post-retirement planning – include:
- Choosing investments (34 per cent of respondents).
- Keeping track of changes in rules and regulations (29 per cent).
- Managing accounting fees and charges (20 per cent).
- Handling paperwork and administration (19 per cent).
- Finding time to research investments (16 per cent).
- Building sufficient wealth to not outlive retirement savings (11 per cent).
The most positive finding was that a fifth of SMSF trustees do not find any aspect of running their fund hard.
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