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Confidence and trust in your own abilities, particularly with financial matters, isn’t something you necessarily learn at school, and luck decides whether you learnt these qualities as a young person at home.

For most Australians, confidence in money matters is a lifelong journey that can begin as early as when you start getting pocket money (if any), or when you start your first job, or apply for your first credit card. Perhaps your real lessons with money started when you first lived independently and paid rent, or when you took on a mortgage, or started paying school fees.

Regardless of when you began your financial literacy journey, considering taking full control of your retirement savings is a mature and impressive approach that can potentially catapult you to the top of the class in financial literacy.

Before I congratulate you on reaching such a level of financial acumen, I must warn you: Just because you can, doesn’t mean you should. The key question you need to ask yourself is:

Am I suited to running my own super fund?

I have created a checklist, what I call my DIY Super 6C Challenge, to help you decide whether a DIY super fund (or SMSF) is the ‘right fit’ for you, and for your retirement planning needs. In simple terms, I believe six factors all starting with the letter C, determine whether you have the opportunity, means, skills and inclination to drive your own super future:

✔ Can you?

✔ Control

✔ Cost

✔ Competence

✔ Compliance

✔ Commitment

Are you ready for the DIY Super 6C Challenge? If you already have a DIY super fund, the question I ask remains basically the same: Are you ready to find out whether you’re up to the DIY Super 6C Challenge?

Can you?

What a silly question; you may be thinking: ‘Anyone can set up a self-managed super fund (SMSF), can’t they?’

Strictly speaking, yes, anyone can set up a SMSF. If you’re self-employed, or not employed, you can choose any super fund that you like, including a SMSF.

If you’re an employee, and you have fund choice – that is, you have the right to choose the super fund where your employer pays your Superannuation Guarantee (SG) contributions (see Chapter 4 for information on SG) – you can choose between having your SG paid into a super fund that’s managed for you, or running your own super fund. I explain how to arrange your employer’s SG contributions to be paid into your SMSF in Chapter 7.

And, if you don’t have fund choice – that is, you don’t have the right to choose your own super fund for SG contributions – you can still set up a SMSF, though you can arrange for only your own super contributions to be paid into your SMSF. You may also have the opportunity to transfer existing super benefits to your SMSF (also in Chapter 7).

A quick way to find out whether you have fund choice is to ask your employer. Alternatively, you can check out information about ‘choosing a super fund’ under the Super tab of the Australian Taxation Office (ATO) website (www.ato.gov.au/super). I also explain fund choice in Chapter 2, and on my website, SuperGuide (www.superguide.com.au).

If you’re considered a disqualified person (see the sidebar ‘Your history may close the door to SMSF’ later in the chapter’), you can’t become a superannuation trustee, which then precludes you from running a SMSF. In Chapter 8, I explain who can and can’t become a SMSF trustee.

Control, control, control

Think carefully about why you want to run your own super fund. For most SMSF trustees, the desire for greater control over super savings is reason enough. Some typical and valid ‘control’ reasons why individuals set up SMSFs are

✔ Control over your fund’s investment strategy and a greater choice in what you can invest in, including direct property and collectibles, such as works of art. I take you through your SMSF investment responsibilities in Part IV of this book.

✔ A belief you can do a better job investing your super money than your existing fund’s trustees, and at a lower cost. I explain how much a SMSF costs in Chapter 6.

✔ The ability to take advantage of tax benefits linked with super (see Chapters 13 and 18).

✔ Flexibility in when and how you fund your retirement, including starting a superannuation pension (see Part V).

✔ Opportunities to purchase business property, such as an office, within the SMSF, and to use the property in your business (see Chapter 17).

✔ Opportunities to make ‘in specie’ contributions – that is, transfer assets into the SMSF rather than contribute money, subject to contributions caps (see Chapter 4).

✔ For the purposes of estate planning. Any death benefits paid from your fund to your dependants (under the tax laws) are tax-free, and your fund can provide for future generations in a flexible way. I discuss death benefits in Chapter 24.

Cost-effective, or not?

Each year, tens of thousands of Australians set up SMSFs, joining more than half a million Australians who already run a SMSF. Each individual SMSF member brings an average of around $537,000 into the sector, or just over $1 million ($1.02 million) per SMSF (based on each SMSF having an average of 1.9 members), according to ATO statistics.

A curious statistic is that even though just over half of all SMSFs have fund assets exceeding the value of $500,000, the other half or so (46.9 per cent) hold assets worth less than $500,000: One-quarter (22.3 per cent) of all SMSFs hold less than $200,000 in fund assets, and the other quarter (24.7 per cent) of SMSFs holding between $200,000 and $500,000 in assets, based on the ATO’s SMSF June 2014 quarterly statistics released in September 2014.

In 2013, the financial regulator, the Australian Securities & Investments Commission (ASIC), commissioned research on the cost of SMSFs, including seeking an answer to the question: What is a cost-effective balance for a SMSF? The report, produced by Rice Warner on behalf of ASIC, found that $200,000 to $250,000 was a cost-effective balance for a SMSF, and was comparable to, or cheaper than, the costs charged by large super funds if the SMSF trustees were willing to do some of the fund administration themselves. Clearly, cost isn’t the only driver for setting up your own fund if at least one-quarter of all SMSFs aren’t supposedly ‘cost-effective’.

The general rule is that you need a superannuation balance of between $200,000 and $250,000, either on your own or among the other members who are to be in the fund, for it to be cost-effective. If you don’t have $200,000 in super, opting for a DIY super fund may still be cost-effective if you make substantial contributions in the first few years. I discuss the costs involved in setting up, and running, a SMSF in Chapter 6.

Competence counts

Do you have sufficient knowledge of super, and the skills to run a super fund? For most people, the answer is ‘no’. Admitting that you need assistance with your super fund isn’t ordinarily a problem because plenty of advisers and service providers are willing to help.

Next question then: Do you have access to an adviser with DIY super expertise? You’re most likely going to need an accountant and/or a licensed financial adviser. You may need a lawyer to draft the trust deed (the document or rule book for your super fund) and to assist with any estate planning needs. Depending on your circumstances, you may want to chat to an insurance expert, or appoint a stockbroker to buy and sell shares on your behalf. You may even decide to appoint a fund administrator to assist with the operation of your super fund. I explain the roles that these experts perform in Chapters 5 and 10.

As trustee of your SMSF, you must draft an investment strategy, follow special investment rules, and choose investments that can deliver you a retirement benefit when you finish work. If you know nothing about investing, I don’t believe a DIY super fund is the place to begin your investment classes. I take you through what you need to consider when investing your DIY super monies in Part IV of this book.

Compliance calls

Complying with the super rules may not be as sexy as investing your super assets, but if you get the compliance side right, everything else is likely to fall into place. Make sure you understand the rules relating to setting up and administering your SMSF. You can expect fairly onerous administration, reporting and tax requirements – what I call your ‘DIY Super CART’ (Compliance, Administration, Reporting, Tax management). Are you up to it? You can find out what CART involves in Part III of this book.

You must sign a SMSF trustee declaration stating that you’re responsible for ensuring your super fund complies with the super laws (see Chapter 9). If the ATO ‘hits’ you with the naughty stick, you can’t point the finger at your accountant, your investment adviser, your administration service provider or your fellow trustees. You may have a right to take action against your advisers if you believe the advice you relied on was dodgy, but don’t expect the ATO to let you off the hook for your SMSF trustee responsibility.

Commitment issues

Are you attracted to DIY super by your love of responsibility, and the honour of taking control of your super savings? Unlike professional trustees, you’re not permitted to receive payment for your task. Running your own SMSF is a long-term commitment – at least until you retire … and longer if your fund is going to provide you with a pension, or your children with superannuation benefits. Are you that committed?

Many DIY super trustees have a confidence about them that’s related to success in some part of their life, usually in financial matters. From my experience, DIY super trustees are independent-minded individuals who have achieved success in work, or in investments, which reinforces that running their own super fund is the right fit.

The fact that you’re thinking of taking control of your super savings is a very good sign for your retirement plans, even if you don’t end up running a SMSF.Your history may close the door to SMSF