How to close your SMSF now the rules have changed
Many public-offer super funds such as those run by industry groups, trade unions and large financial institutions, are intensifying their efforts to stem the flow of investors into self-managed superannuation funds (SMSFs).
A main tactic centres on offering a so-called "direct investment" option, the latest super fund to do so being NGS Super. Originally established to serve the superannuation needs of employees in NSW non-government schools, it now has around 105,000 members Australia wide.
A direct investment option usually provides members with the ability to allocate at least part of their super savings to a range of term deposits and shares in listed companies, with members able to decide which shares and term deposits are chosen.
But while offering this option goes some way towards providing self-directed investors with greater control of their super, it delivers much less control than running your own SMSF.
Given this, it may be that an alternative strategy about to be launched by CareSuper, an industry fund that focuses on professional and other white-collar employees, will turn out to be a more effective way of winning people away from the SMSF option. Instead of trying to appeal to people who may be thinking of opting for an SMSF, the CareSuper strategy targets those who are already members of an SMSF but are having second thoughts.
Anyone in this situation not only faces the task of transferring their super to a public fund but also the more complex process of winding up their SMSF - a challenge that may well prompt them to decide against a change. This is where CareSuper's strategy comes into play.
The centrepiece is a proposed new service to help trustees of SMSFs wind up their funds and, it is hoped, switch their super to CareSuper. In an interview with specialist online news service SMSF Adviser, the fund's chief executive, Julie Landers, said a key reason people wanted to wind up an SMSF was that their circumstances had changed.
One of the most dramatic changes, she noted, was when the husband who set up and ran the fund had died. Unless his wife is actively interested in taking over the SMSF, transferring to a public fund is likely to be the sensible option.
There can be a lot more work involved in closing a fund compared with opening it. Certainly there is a long list of issues that have to be dealt with if you are to comply with all the regulatory requirements.
These include, but aren't limited to, checking the trust deed doesn't include any specific requirements that apply to winding it up, passing resolutions about what is to be done with the member's (or members') entitlements, converting the fund's assets to cash, preparing all the documentation for closing the fund, and notifying the tax office when the wind-up is complete.
While a competent accountancy firm should be able to handle these and other details, getting additional help from a group such as CareSuper is likely to appeal to those who have limited experience in running an SMSF.
Super tip
Today's low-interest rate environment is prompting more investors, including SMSF trustees, to invest in so-called hybrid securities - subordinated notes, capital notes and convertible preference shares.
But as the Australian Securities and Investments Commission warns, hybrids are complex and the higher returns they generate come with extra risk. This is examined in a new consumer information report on hybrids on ASIC's MoneySmart website.
SMSF trustees should read this before investing in hybrids. Just go to the site (www.moneysmart.gov.au ) and type "hybrid securities" into the search box. As with all complex investments, if you don't understand how a particular hybrid works, don't invest. It isn't worth the risk.
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