What changes with your client's SMSF as they move into retirement


First appeared in Switzer Daily, 8 July 2018 

Retirement is a big decision. Existing work/life patterns change. Income source, and often income levels change. Clients may actually have more time on their hands to do what they really want to do. But if they have a self-managed super fund (SMSF), is there anything different that your client needs to think about?

Just like the decision around retirement, the decision to run an SMSF is a significant one and should not be viewed lightly. And as your clients decide to move into retirement, there are a number of important factors to consider.

The first question your client should turn their mind to is whether maintaining and running their SMSF is something they want to do in retirement. As you are aware, the proper and effective running of an SMSF does take time, and shouldn’t be considered lightly. Getting professional support can certainly make things easier, but doesn’t remove their responsibility. If one of the reasons for yor client's retirement is to pursue dreams beyond a working life, do they still want to spend time running an SMSF? Arguably theyshould have more time to do so, but if their dreams involve travel, they could find themselves with less time to devote to an SMSF.

If your client does decide to continue with an SMSF, the next step is to ensure that it is “retirement ready”. What do I mean by that? You need to ensure that their SMSF can support their needs in retirement. The most critical point here is to ensure that the SMSF Trust Deed allows for payments to be paid to your client in the form required (for example, a lump sum or pension payment), at the right time or frequency, and pays the right amount. 

This should be obvious, when you consider that the whole purpose behind super (and an SMSF) is to accumulate wealth to be drawn down in retirement. But if the SMSF has been around for a while, its Trust Deed could be quite rigid in terms of the types of income streams it can pay in retirement, and they may be more rigid (or less flexible) than is actually allowed under superannuation laws today. Similarly, the Deed might talk to types of income streams that are no longer permitted.

If your client find themselves in this situation, it can be rectified by having the Trust Deed amended, but the processes required and the level of change required will differ from one SMSF to the next. So getting the right legal advice on the changes required and processes to do so is important. Even if no changes are required, having the SMSF’s Trust Deed reviewed to confirm no changes are required can at least give your client some piece of mind.

You should also review their investment strategy to ensure it is appropriate for their future needs. This doesn’t mean go and change all the investment to cash, term deposits and the like – things that are very capital stable so that you don’t need to worry as much about market fluctuations. Going too cautious with your client's investments reduces their ability to still benefit from capital growth that may be available, and it’s the potential for capital growth that could assist in making their money last longer. 

Similarly, think about what options your client has to balance the need to draw an income, still have access to capital, and provide them with some potential longevity in their savings. There isn’t a single easy solution to this, as many factors come into play. But it’s worth exploring what options they have.

Estate planning may become even more important for your clients in retirement. Let’s face it, retirement is usually associated with getting older, and getting older generally means the time we have left is getting shorter. Do your clients have the right estate plan in place – over their super and non-super savings? What’s changed since they last looked at it? Do they have nominations in place for their super to prevent it becoming an estate asset, subject to their Will, and are those nominations current and to the right people?

Finally, it is really a case of coming back to the first consideration mentioned around the suitability of maintaining an SMSF in retirement. Still having one might be the right answer for your client today, but at some point in the future (unless they have more members join), their super savings (and the overall balance of the SMSF) will start to diminish, and the relative costs of running it will likely increase. Rather than waiting until it’s all too late, if your client isn't exiting now, they should think about what their future exit plan will be.

There is no reason why an SMSF can’t continue to play an active role in your client's retirement plans into the future. Just ensure they have considered what role they want that to be.

Bryan Ashenden is Head of Financial Literacy and Advocacy at BT Financial Group. 

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Setting a tax strategy for your clients before they start their TtR pension is an important step in helping them increase both their savings and their super.

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Information current as at June 2018. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs having regard to these factors before acting on it. This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. Any super law considerations or comments outlined above are general statements only, based on an interpretation of the current super laws, and do not constitute legal advice. This publication has been prepared by BT Financial Group, a division of Westpac Banking Corporation ABN 33 007 457 141 AFSL & Australian credit licence 233714.