Question 1

• Hi Craig, can you explain the differences between managed funds and separately managed accounts (SMA). As our financial adviser is suggesting investing our super in SMA instead of managed funds. As we haven’t heard of SMA before, not sure whether this is for us as we are not big risk takers. Cheers, Chris

Hi Chris,

Managed funds have been around a long time and provide an easy way to invest funds, especially if you want to outsource the investment decisions to a professional.

Managed funds are very popular and there is just about a managed fund for every type of investment you are looking for, e.g. Australian shares, balanced funds, bond funds, diversified funds.

Managed funds can be ‘active’ where the fund manager tries to obtain a return better than the market, or you can choose a passive or ‘index’ fund that simply tracks the market for a very low fee.

Separately Managed Accounts (SMAs) are similar to managed funds (and ETFs) but they do have differences.

With managed funds your money is pooled and invested together, without any regard to each individual investor.

However, when you invest in a SMA, you own all the securities within your portfolio. This gives you, or your financial adviser, more flexibility as to how those funds are invested and managed, as well as providing more transparency over the actual underlying investments.

While managed funds can be appropriate for most people, you don’t always know what the underlying investments are and when the fund is making changes. The other disadvantage is you have no control over the tax outcomes.

As an example, I bought into a managed fund many years ago, and at the end of the first financial year I held them I had to record a large capital gain on my tax return.

This was because the fund sold some shares it made large gains on. The problem was I was not invested when most of those gains were made, as they happened over many years, but I ended paying tax on them.

When you invest in a managed fund you don’t know what capital gains you are buying into.

Many of these issues are better managed with SMAs. However, they often require larger minimums, and the fees may be higher. You therefore need to weigh this up.

Additionally some advisers add their fees into the SMA, making them even higher. You would need to clarify this with your adviser.

SMAs are not necessarily riskier. That will depend on what it invests in, i.e. what are the actual underlying investments. The SMA is just the structure that holds them.

Question 2

• I will soon be changing from a disability pension to an age pension. I earn $250 a week wages … what tax will I have to pay year ending June 2024?

The age pension is taxable and so, of course, is your salary.

I have assumed you will receive the full age pension of $1097 per fortnight or $28,514 per year.

This is because you can take advantage of the work bonus and potentially not exceed the income test.

When we add your work income, your total income for the year is approximately $41,500.

Once we allow for the low income and Senior Australians and Pensioners Tax Offsets, your estimated income tax and Medicare will be about $3160.

Question 2

• I have a 54-year-old son with a level of disability. He is working three days per week in a basic admin job and is on a part disability pension. I am in a position to contribute towards his super and his current balance is about $200k. I own the residence he occupies and he pays a nominal rent. I am aiming to secure his long-term wellbeing. Is super the way to go and, if so, how much can he contribute? 

The current superannuation contributions caps would apply to your son.

That is $27,500 as pre-tax (concessional) contributions and $110,000 after-tax, non-concessional contributions. Although you can ‘bring forward’ future non-concessional contributions and make $330,000 contribution in one hit.

As your son is only six years away from his preservation age, which means he can access at least some of his super at that point, super is definitely worth considering.

You could also consider looking at a Disability Support Trust and have your son as beneficiary as there are significant concessions available with this. However, your son would have to be classified as having a severe disability.

It’s recommended that you consult a financial adviser or lawyer for advice before establishing a Special Disability Trust.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.

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