Here are five critical take-outs from the ATO’s Your self-managed superannuation fund (SMSF) investment strategy to ensure you are meeting your duties:
1. Get Personal
Include relevant details about each member including age, employment status and retirement needs. Your investment strategy should clearly explain how the fund’s investments will achieve each member’s retirement objectives, including considering the investment risks, diversification and liquidity.
You should also consider the fund’s ability to pay benefits to members (such as pension payments to a retired member) and whether to hold personal insurance for members.
2. 0-100% asset allocation ranges don’t cut it anymore
When determining allocations, you can specify percentage or dollar terms. You should explain the reason why the range of assignment will help achieve the fund’s investment objectives. For example, a fund looking to meet a return of CPI + 5% will require a significant allocation to Australian Shares, International Shares or Property because of the return profile (capital growth and dividends) of these asset classes is aligned to the investment objective.
Keep in mind that short term variations aren’t considered a deviation from your investment strategy. This may include the sale of an asset such as a property or shares which will then be re-allocated within a reasonable timeframe.
3. ‘set and don’t forget’
The ATO suggests you review your investment strategy at least yearly and document the review. You should also consider your strategy in the event of (but not limited to) the following situations:
• Market correction
• When a member joins or departs the fund
• If you are adding or removing personal insurance to the fund
• If a pension is commenced or lump sum was taken from the fund
4. Single asset?
There are risks associated with owning a single asset or asset class, such as concentration and liquidity risk. These risks may result in undesired outcomes for members such as the inability to fund pension payments or a market event resulting in failing to meet retirement objectives. There are cases where this may be appropriate based on the fund and members circumstances. The relieving indication is the guidance appears to relax views on owning a single asset or asset class so long as it meets the investment objectives of all members. If your fund owns a single asset or asset class, your investment strategy should spell out how you believe the allocation will achieve the fund’s objectives; however, be careful to address the risks.
5. Get Professional advice
As always, if you don’t feel as though you need assistance with the preparation of your investment strategy or other SMSF matters, seek advice from a professional with the appropriate SMSF qualifications.
The ATO’s guidance is a comprehensive illustration and the perfect tool for you, relating to your SMSF investment strategy. It is worth noting that there are several consequences if you fail to fix a non-complaint SMSF investment strategy. These include mandatory reporting to the ATO and a penalty of up to $4,200 for each trustee. Be sure to follow the guidance when you next review your SMSF investment strategy or refer to a qualified professional.