Question 1: Is it better to have self-managed super or stay in an industry super fund?

A self-managed superannuation fund (SMSF) can offer potential advantages for those with the time and interest in operating one.

But for most people, an industry or retail super fund is more appropriate.

An SMSF can give you more control over your investments and tax outcomes, and it can also provide access to some investments that are unavailable to regular (APRA-regulated) super funds.

Some people also like to invest in properties via their SMSF.

But you need to be aware of the risks, the costs and the responsibility you are taking on when opening a SMSF, as you are not only a member of the fund, but the trustee in most cases as well.

Some other points to consider:

• Although you can seek professional help from advisers, auditors and accountants, you are personally liable for the fund’s decisions
• The costs of running an SMSF can be a lot higher than people expect. According to an ATO report in 2019, the average annual operating cost of running an SMSF was $6450, and the median cost was $4069
• You generally need some scale in your SMSF to keep costs down and to achieve net returns above that of a regular super fund. A general rule of thumb is you need about $500,000, although if you are prepared to undertake a lot of the administration and other tasks, it may be appropriate to start with less
• You should consider whether to obtain insurance via your SMSF in order to replace the insurance you most likely have with your current fund.

These days, some of the larger industry super funds have direct investment platforms within their funds that allow members to select certain investments or shares in their fund, so if you are considering an SMSF it’s worth first checking what your fund can offer.

My advice would be: Do some research before jumping in, obtain personal advice and ensure you are fully committed to an SMSF before setting one up, as they require dedication and time.

I also suggest having an exit strategy as well. I have seen many older people getting frustrated with running their SMSF and the process to wind up a fund can be time consuming and costly.

Question 2: I find myself in a position of assisting my sister who has Alzheimer’s as her Enduring Power of Attorney. She is now in an appropriate care situation. I have paid the deposit required, $550,000 from the sale of her property, however I have approximately $120,000 left from the sale that is currently in her bank account.

She receives an age pension currently of $842 per fortnight plus $1118 per month from an annuity. Her expenses at the facility are about $1120 per fortnight plus usual pharmacy account of about $100 per month. Her incidentals and little luxuries add another $400 per month to her expenses.

My question is in two parts:

• What can I do prudently for her with the $120,000 I have parked in her bank account? And from these details am I likely to be able to maintain her for another 10 years or so of anticipated life span, and is there anything more I should be doing?
• And perhaps where can I go if necessary to get advice that is not going to cost too much if there is more that I should be doing? Making financial decisions for others always makes me apprehensive.

I agree: Making financial decisions for others can be very difficult and complicated.

On the positive side, it’s great that your sister has in place an Enduring Power of Attorney that gives you the authority to make financial and care situations on her behalf.

Most people know the importance of having a will. But having an appropriate power of attorney in place in the event of being unable to make decisions for yourself is often overlooked and can lead to significant problems down the track.

This is something everyone should consider when reviewing their estate planning situation.

From the numbers you have provided, it sounds like your sister’s income and expenses even out over the course of the year, coming in at just over $35,000.

In terms of what you can do with the $120,000, it would depend on a number of factors and objectives, such as:

• Do you (on behalf of your sister) require this money to generate an income?
• Is it likely that some of the funds may be needed to cover any one-off expenses?
• Would you only want to look at conservative types of investments for your sister?

If the money is likely to be used over the next few years, or you want to avoid volatility in its value, then keeping it in a high-yielding bank account or a term deposit would be appropriate.

If you have a longer-term horizon for some of the funds (say seven years or more), and can accept some ups and down over that period, you could look at investing the funds in more growth-style assets, such as shares and property via a managed fund or exchange-traded fund (ETF).

If you want to produce income for her, you could explore investing in more annuities that could provide a guaranteed income and in some circumstances provide Centrelink benefits.

In terms of obtaining advice, ASIC’S Moneysmart website has some good tips on receiving financial advice and choosing an appropriate adviser. 

Question 3: We are selling our house and downsizing and will have approximately $80,000 left after our move. We both get the full aged pension. How will the cash affect this? 

Services Australia (Centrelink) does not assess your principal home under either its asset or income tests.

Depending on what you do with the $80,000 after downsizing, your overall position will then determine any impact on your age pension.

If funds are placed into a financial asset, such as a bank account, a term deposit or shares, then they will be counted under the asset test and deemed under the income test.

As a couple who own their home, you can have up to $405,000 in assets and still receive the full age pension, and up to $891,500 and receive a part age pension (as of September 2021).

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. 

The New Daily is owned by Industry Super Holdings