Why would I choose an ethical SMSF?

 

Do it your way !

Wanting to invest your superannuation your way? Love to have your retirement assets reflect your ethical values? The good news is that you can grow your retirement funds in a more meaningful way in areas that interest you.

Superannuation does not need to be invested with big multinational fund management companies or in industry super funds with standard choice offers. Investing in a Self Managed Superannuation Fund with specialist advice by an ethical investment adviser can create a financially rewarding and socially and environmentally positive retirement base.

Firstly a Self Managed Superannuation Fund (SMSF) requires a reasonable account balance to justify the establishment costs and trustee obligations. Generally a minimum of $200,000 with regular contributions would be needed.

In an SMSF you can combine your unique combination of the following:

  • Shares
  • Property investments
  • Bonds
  • Hybrid fixed interest securities
  • Managed Funds
  • Cash Accounts
  • Term Deposits
  • Seperately Managed Accounts (SMA)

So what are the investment choices?

Ethical property investment options

A SMSF is the only superannuation vehicle that can purchase properties directly for your purposes and interests. Purchasing environmentally positive homes provides a tangible investment choice with environmental benefits. The annual rental income and growth adds value to your superannuation fund value.

Ethical investment share choices

Having a SMSF means that an investor can buy shares that they personally have an interest in and support businesses that reflect their ethical concerns and values.

The standard superannuation investor will have the share component of their superannuation fund invested predominately in the largest 50 Australian share companies in a similar ratio to the size of those companies. Therefore companies such as BHP Santos, Woodside Petroleum and Rio Tinto with significant Coal, Petroleum and Uranium interests would all be predominant shareholdings in a standard superannuation fund.

There are many international and Australian companies that display very positive corporate citizenship. Companies that look after the community, their staff and the environment have strong brand loyalty and staff retention.

Although, for the individual investor, it can be difficult to find out about these businesses in the sea of "greenwash". An ethical investment adviser would source information from a range of research experts, not only financial analysis but also social, environmental and governance research on companies.

Historically companies with good ethics tend to have strong consumer loyalty and staff retention. Ethical companies that look beyond the financial bottom line are generally forward thinking businesses that are reducing their financial risks by assessing the environmental and social costs of their businesses.

Other investment choices for the ethical investor

There are bonds that provide capital risk management and security at a reasonable income return. These can be issued by companies with positive ethics including some banks as well as governments.

Hybrid fixed interest/shares opportunities can provide attractive after tax income with growth prospects within companies that suit an investors risk and ethics profile.

The advantage of a SMSF is that you can invest your retirement savings your way and an ethical investment specialist can ensure that your risk and values are reflected within the choices recommended and you know where you money is invested and what it is doing.

A standard superannuation fund product is quite intangible and the underlying investments an unknown to most investors. Ethical investment within a SMSF is quite empowering for clients as well as financial rewarding.

Pensions

SMSF's can be easily converted into pensions and in the right circumstances can be paying tax free income streams. SMSF's are very flexible and there are several types of pensions that can be set up. These include Transition to Retirement (TTR) Pensions, where you are bale to take a pension prior to retirement.

Employer contributions

In most circumstances SMSF's are able to take employer contributions and you can roll over most other supers into an SMSF.

Trustee responsibility

Having a SMSF has its downside, as Trustees you would be responsible for the investments and ensuring that the super is run according to the various rules and regulations set out by the Australian Tax Office (ATO).

However you can enlist the services of your adviser or accountant to assist with the set up of the fund and the day to day running of the super.

Why should I have a Self Managed Super?

You should consider a self managed super if:

  • You want a more 'hands on' approach.
  • You want control over the assets that are bought and sold.
  • You want to be selective about the investments you will have in your super fund.
  • You are not happy with the ethics and/or performance of your current superannuation fund.
  • You want to buy an asset like a residential property that cannot be bought through a standard super fund.


Costs

There can be up-front costs of setting up the SMSF, including the establishment of the Trust Deed and registering for an ABN with the ATO.

The cost of running a self managed superannuation is generally around the same cost as a public offer fund, but slightly more than an industry fund with an ethical overlay. Of course this depends on how much money you have in superannuation. As your superannuation grows, the more affordable a SMSF becomes. Ask your adviser for full details of costs.