Opinion
I’m getting old and my SMSF has become a burden. What should I do?
Paul Benson
Money contributorI am 80 years old and recognise I am not as sharp mentally as I once was. Over the past 25 years I have managed a self-managed super fund (SMSF) which contains a market linked pension. I don’t want the burden of running the SMSF any longer, but I don’t know what I can do with the market linked pension.
Congratulations on having the self-awareness to recognise your limitations. Self-managed super funds, whilst less necessary today than in the past, can be a great vehicle for building retirement savings for those with the inclination towards getting into the weeds somewhat regarding investment markets and our superannuation system.
However for most, there comes a time in later life where the costs in time and accounting fees outweigh the benefits.
Sometimes we also see situations where a retiree (usually male) uses their self-managed super fund as a new hobby to replace what they used to do at work. As a general rule, the more we fiddle with our investments the worse we do, and an SMSF is no different.
For most, there comes a time in later life where the costs in time and accounting fees of a self-managed super fund outweigh the benefits.Credit: Simon Letch
For readers, market linked pensions (MLPs), also known as term allocated pensions (TAPs), were a specific retirement income product introduced in 2004 and available until 2007.
They were designed to strike a balance between a lifetime annuity and a traditional account-based pension. Investors could choose how to invest the money within the superannuation system but had to commit to keeping the funds in the superannuation system for a fixed term, generally based on their life expectancy at the time of commencement.
The compensation for agreeing to these requirements was that the MLPs received favourable treatment by Centrelink when it came to eligibility for the pension. Specifically, only a portion of the MLP’s value was counted as an asset under the pension means test, which typically resulted in higher pension payments.
The good news is that there are wrap facilities that will accept rollovers of MLP’s. You will need to co-ordinate between your financial adviser and accountant to get the new facility established and the SMSF wound up.
The only obstacle will be if there are assets in the SMSF which are illiquid or unlisted, for example a property. Given the need to make pension payments, such assets would likely need to be sold down at some point, so perhaps this move is the trigger.
My income protection premiums have increased considerably this year. My adviser suggested I could get them down by shifting from a level premium to stepped premium. Is this a good idea?
Level premiums increase less as you age, but require higher premiums for the initial 7–10 years of owning the policy. Level premium insurance policies can be attractive if you were able to lock it in when you were in your 20s or perhaps early 30s, and have a need to retain your cover all the way through until age 65. But for most people stepped premiums offer more flexibility.
The challenge with a level premium policy, aside from the extra cost at the front end, is that to see a benefit, you need to stick with that particular provider, and retain the policy well into your 60s.
This means you can’t shift to a better policy if one becomes available, or reduce the level of cover, or even cancel it altogether later in life, if your financial position is sufficiently robust that the insurance is no longer needed.
Paul Benson is a Certified Financial Planner at Guidance Financial Services. He produces the weekly email GainingCHOICE. Questions to: paul@financialautonomy.com.au
- Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.
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