By Penny Pryor
You should review your SMSF at least twice a year, and the beginning of a calendar year is a good time for a biannual once-over. There are a number of administration tasks to keep on top of and it doesn't hurt to see if your asset allocation is on target, too.
At this time of year, do a quick calculation of how much you’ve contributed to superannuation so far this financial year, to make sure you don't exceed the concessional or non-concessional limits.
If you get a handle on this now, you can better prepare yourself for the next six months. The following table shows the limits for different age brackets, which have also recently been raised.
The bring-forward cap is three times the non-concessional contributions cap of the first year.
It’s also always a good idea to have a look at some of the basics, like your trust deed, and within that, your investment strategy document.
Ask yourself the following questions:
How long is it since you updated it?
Have you made changes during the year that have not been included in your trust deed?
What about your investment strategy? Does it capture any major changes that happened in the past 12 months? (Link to: http://intheblack.com/articles/2014/08/28/how-to-write-an-investment-strategy-for-an-smsf)
Have you changed your overall market view and if so, is it included in your investment strategy?
You may have a member who is planning on retiring sometime this year or even just starting up a transition to retirement pension as they make the move over a number of years.
If this is the first member that the fund will start paying a pension to, you need to have the right documents in place, which will include an actuary’s certificate. It’s a good time to make the requisite appointments to make sure all the pensions go smoothly when you need to start them.
If you’re in pension mode, also make sure you’re paying yourself the correct pension amount.
There are minimum thresholds that you must abide by as outlined in the table below.
Minimum annual payment
Age is either at: 1 July in the financial year in which the payment is made; or the commencement day if that is the year in which the pension or annuity commences.
And if you’re paying a transition to retirement pension, there is also a maximum payment threshold of 10 per cent.
That 10 per cent maximum pension rule also applies in the year the transition to retirement pension commences. For example, if your pension commenced on 1 January, the maximum 10 per cent income rule applies in the period of time between the date the pension was commenced and the end of the pension’s first financial year (i.e., it is not pro-rated as it is for minimum payments).
You should start with your overall allocations to individual asset classes. Perhaps you think you should have more allocated to international shares, for example, or you might start to consider bonds. Whatever you do, make sure you document it in your investment strategy.
Then when you drill down a bit more, check that your sector allocations within your equity holdings haven’t changed too much. For example, if there was a big jump or fall in one particular stock, it might have thrown out sector allocations, so now is a good time to rebalance to your original strategic targets.
As you do, it’s important to review your understanding of the most important sectors in the Australian market.
Your investment strategy should include a target that is measured against the benchmark and, just like the rest of the market, these weightings can also change. The Australian market is quite heavy in financials, as the table on the screen now shows.
S&P/ASX 200 Sector Weights
Source: Standard & Poor’s, Data as at 30 December 2014
And in the spirit of a fresh start, the beginning of a new year is a good time to cut ties with those stocks and investments that have really done you no favours over the past year.
Investor psychology shows that we are more likely to hold on to losing stocks than sell winning ones, so perhaps it's a good time to finally bite the bullet and make selling your dog stocks a New Year’s resolution.