Taking the time to choose the best super option for your business will pay off in the end—and probably save you in more ways than one. Nicole Azzopardi reports.
For many of us, the concept of superannuation is like finding that $20 note in an old pair of jeans—that little something you tucked away for later and then completely forgot about.
In fact, industry experts estimate 80 per cent of Australians don’t manage or even look at their superannuation at all.
But as you progress from busboy to business owner, superannuation becomes a tangible money maker and the way you manage it can result in a comfortable retirement, important tax breaks and insurance cover for you and your employees.
The fundamental question for many in the hospitality game is: How does my super plan stack up against the other options on offer?
“If you are unhappy with the investment returns of your super, check to see if your fund offers other investment options that would be better for you,” suggests financial advisor and chartered accountant Sarah Cavanagh.
“Are you taking full advantage of the fund’s insurance? What about other benefits such as low-cost home loans?”
According to Cavanagh, super should be looked at as your own investment—part of your capital asset.
“Start thinking of super as an investment,” she says.
“It’s your money and if you’re interested in what car you buy or what house you live in, you should be interested in your super.”
But what are the options?
The basic line-up goes like this: industry funds, self-managed funds and master trusts or WRAPS.
These days, super products are many and varied, with industry funds leading the way in popularity, and often, in consistent performance.
“Industry funds are set up to provide a secure environment to put superannuation in where you don’t have to think about it,” Cavanagh says.
“They are consistent performers and are managed for you, but the limitation is that you can’t get too involved in the running of them.”
However, HostPlus marketing programs manager Melissa Birks believes industry super funds have a real point of difference. The hospitality superannuation leader has more than 46,000 employers on its books and more than 830,000 members.
“Industry super funds make up between 70 to 80 per cent of the top ten performing funds in their balanced options over one, three, five and seven years, (to December 2007), with the only non-industry funds in the top ten being corporate or government funds,” Birks says.
“We understand that employers are busy, so we focus on reducing the administration burden. In addition, the lower fees can make a significant impact on your end account balance.”
Self-managed super funds
A self-managed superannuation fund (SMSF) is essentially one that is controlled by you.
A SMSF can have up to four members, all of whom must be trustees (and all trustees must be members).
Members and trustees make all decisions relating to the operation of the SMSF, including how its assets are invested.
While this provides added responsibility in relation to your superannuation, the majority of the compliance and administrative tasks can be outsourced to your accountant and financial planner, giving you added flexibility and control.
“A SMSF suits those with a reasonable level of understanding about investment,” Birks says.
“But it also requires a lot of time and energy, and the cost of running an SMSF
is significantly higher than an industry fund.”
According to Birks, it costs around $2000 to get an SMSF established, with fees of around $1,100 per year, plus investment costs.
“It’s generally understood that you need a minimum of $150,000 to make it economically viable but the average Australian bank account has $45,000, so it’s not for everyone.”
Certified financial planner Neil Kendall advises that a SMSF generally suits business owners with a combined balance of more than $400,000, particularly if they want to own their business premises or another property.
“If you owned a restaurant and the building you were in became available, an SMSF could be used to buy the building,” Kendall says.
“This is advantageous because of the tax benefits available on retirement.
“It depends on how you set it up, but there is a real possibility of not having to pay capital gains tax on the property when you go to sell it,” he explains.
“However, the business itself cannot be run through the super fund—only the building used for genuine investment purposes.”
A master trust or WRAP account is for people who are actively interested in their superannuation and want to manage their own fund, but don’t have enough capital to start a SMSF.
These types of funds enable you to invest in a wide choice of quality managed funds with simplified custody, reporting and administration systems. A high degree of efficiency and control can be achieved with a WRAP account.
The cost of a master trust is often partly or wholly offset by providing access to wholesale investment products, which have substantially lower costs than retail products from the same fund manager.
Generally, those interested in this type of fund would need a start-up amount of $50,000 to $400,000.
“The benefit of this type of structure is that it means you have a financial advisor who will take care of all the paperwork and compliance issues,” Kendall says.
“There’s a degree of protection and simplicity in a master trust compared to a SMSF because it protects you from potential mistakes.”
The classic example is if a SMSF buys a property and then allows a family member to use that property, that would breach legislation, Kendall explains.
“If the restaurant didn’t pay rent to a super fund for using the premises it would be in breach of the legislation and subject to significant penalties.”
Kendall says the most important thing about superannuation is providing retirement benefits.
The other important aspect is to provide insurance protection to your family prior to retirement.
“Most super funds provide life insurance and total and permanent disability insurance,” he says.
“And some funds will also provide income protection cover. It’s important in that if you can’t work and insurance within your super is tax deductible, it’s almost always the cheapest place to get insurance.”
It’s about maximising the value of that nine per cent, as well as protecting yourself by providing an appropriate super fund for employees, he says.
“I recently had a case of an employer at a small goods factory who felt a real desire to make sure employees and their family were looked after, so he made sure everyone had insurance cover within their super fund,” Kendall says.
“There’s generally a minimum level of insurance cover but $50,000 doesn’t go a long way, so they increased the amount.
“He did this out of the goodness of his heart but also to ensure the family wouldn’t need to come to him to request financial assistance if anything went horribly wrong. The right super fund can provide a number of different safety mechanisms.”