Self Managed Superannuation Funds; For or Against?

1. Self Managed SuperannuationFunds;For or Against? Capstone Professional Development Day – 11th December 2009

2. Agenda • The growth of the Self Managed Superannuation Fund Industry • The reasons behind the growth • What can you do differently with SMSFs? • Trustee considerations • Can offering a SMSF to your clients be easy?

3. Stat funds DIY • 32% of all super money = $360B in DIY funds • Fastest growing segment of super • 3% of superannuates in Australia control 32% of super The growth of self managed superannuation funds

4. Outcomes of growth • SMSF’s at $1.3T will account for c. 40% of money in super • ASX 200 has a current value of approx $1.2 T • New investments for super need to be considered • Structured product development by institutions is already starting Likely growth in SMSF’s Assume: • Contributions made on the last day of the year • $1,000 increase in average contributions p.a. • Earnings at 12% net • Current rate of new funds continues

5. Who has a DIY Fund? 76% 35-59

6. Why people establish SMSF’s • Control • Responsibility • Choice • Life events

7. Trustee considerations

8. So many things to think about…..

9. Trustee responsibilities • There are 90 Trustee Responsibilities which are not related to tax matters • There are only 5 Trustee Responsibilities which are tax related • There is a lot of work left unaccounted

10. Statistics on fines – last year Enforceable undertakings Over the last 12 months there have been up to 260 enforceable undertakings relating to compliance issues 80 are in place, and ATO are reviewing a further 100 Trustees and Funds ATO have: Disqualified 15 trustees Wound up 13 funds Made 6 funds non-complying, and looking at taking action on 7 other funds

11. Fines so far this year The ATO so far this year has issued 3 times the fines than last year Significant focus on getting the little things right 4,000 auditors only audit 1 fund 7,000 auditors, audit fewer than 3 funds

12. New Legislation & Trustees Requirements • Lodge returns on time – automatic fines start this year • Tax and MCS returns are now one return – don’t be late – Administrative Penalty (not a tax penalty) • Pensions must meet the minimums and must be paid or the fund is taxable as an accumulation fund • Be careful when drawing pensions and lump sums especially where there are grandfathered pensions in place • Contribution limits are strict limits - change your SOA to cover your recommendation on these

13. New Legislation & Trustees Requirements • Minutes of pensions are required to commence the pension - auditor must confirm the pension is calculated correctly, paid correctly and on Market value of assets • Investment Strategies – primary focus of audit this year (especially with new products coming about) • Be aware of overseas rule changes • Disqualified persons can not appoint a legal personal representative – effective 1st July 2007

14. What is the message? ATO will work with funds to assist Do the things that need to be done SMSFs need attention from the trustees Don’t take an “It will be alright” attitude

15. Why would a SMSFsuit your clients?

16. Why would a SMSF suit your clients? Assist with intergenerational planning Combine public offer funds or industry funds Insurance scope through SMSF Ability to gear via an instalment warrant

17. Intergenerational Planning With careful planning, a SMSF can be a beneficial taxation and asset holding structure Often the most tax efficient method of managing capital gains tax and stamp duty is to bring children into the SMSF early to start accumulating benefits on their behalf All trustees need to be aware of their obligations and what is expected to mitigate the risk of the clients wishes not being met in the event of death

18. Combine public offer or industry funds Roll over and consolidate other superannuation funds into a SMSF Combine family members superannuation funds into a sMSF The control of the fund allows members of the newly created SMSF to select specific investments and potentially tailor their own investment strategies Direct investments Managed funds Unusual or exotic assets IPO’s

19. Insurance scope through SMSF’s Choice of insurance provider The trustee of the SMSF is the owner of the policy and therefore claims are paid into the super fund Abolition of RBLs means dependants can now receive unlimited tax-free lump sum payments in the event of the death of the insured Tax advantages include Trustees can apply SGC or salary sacrifice dollars to purchase insurance through a SMSF using pre-tax dollars Premiums can be up to 100% deductible

20. Instalment warrants What can the DIT invest in? • Basically any investment that the super fund could hold itself can be purchased by the DIT • e.g. Residential property, business real property, shares, cash, managed funds even collectables. The usual rules apply: • Must be purchased at arm’s length basis • Restrictions apply for assets purchased from a related party in the normal way • i.e. can’t buy residential property or collectables from the member or a related party of the member

21. What is a warrant? - Example • SMSF has a balance in members’ accounts of $1,500,000 • The fund wants to use $500,000 of its own funds and borrow $500,000 to invest in an investment valued at $1,000,000

22. Instalment warrant Who can the lender be? • Bank. • Margin Lender. • Yourself or a related party (ie you can be your own lender either as an individual or a trust). • If you are a related party lender the loan should have a commercial interest rate * Please note that if you want to use funds from a company you should seek advice before doing so as the loan may have Division 7A consequences. Please seek advice from your accountant in relation to these matters.

23. Instalment warrant Be careful – you must do this correctly for your client • If not done correctly the borrowing will not be allowed • It will either be treated as a breach of compliance or a contribution resulting in heavy tax penalties

24. SMSF’s - Service not a product • SMSF’s are the most flexible form of super • It is also the most complex • SMSF’s are a service not a product

25. Perpetual’s SMSFAdministration Service

26. Perpetual’s DIY SuperSmart solutions for all your SMSF needs You are looking for Your clients are looking for A simple and compliantDIY solution A focus on strategy and investments Technical support Minimal administration Control and Flexibility Peace of mind A trustworthy organisation Minimal paperwork

27. Our Services Range of services available for you to use: • Technical service (in assistance with your internal service) • Fix It Service • Fund Establishment Only • Full Administration Service

28. How are you involved? • Advice relating to the establishment of the fund • Helping the trustee to understand their obligations • Setting and developing the investment strategy • Monitoring the strategy • Placement of the investments • Taking control over the full area of the client (without having to do the administrative work) • Remuneration for each area can be built into the fund

29. The Golden Rule of DIY And the golden rule is “There is no golden rule as every person’s situation will be different – seek advice”

30. Disclaimer This presentation was prepared by Perpetual Investment Management Limited (PIML), ABN 18 000 866 535, AFSL 234426. This information is for financial advisers and is general information only. It is not intended to provide a potential investor financial advice and does not take into account a potential investor’s objectives, financial situation or needs. The information contained in this document is believed to be accurate at the time of compilation and is provided by PIML in good faith. This document does not contain all the information a potential investor would need in order to make an informed decision as to whether to invest and so potential investors should make their own enquiries and rely on their financial adviser’s advice before making an investment decision. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. No company in the Perpetual Group (Perpetual Group means Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of any fund or the return of an investor’s capital. Smartsuper is a wholly-owned subsidiary of Perpetual Limited.