Have you read your SMSF financial statements recently? The financial statements for most SMSFs are prepared on a cash basis with no consideration for the retirement obligations of the fund’s members. This is less than helpful when say:
- you have less than $200,000 and are mid-career, or
- you are a couple approaching retirement with a combined balance of $500,000 or
- you are a young adult with no savings, or
- you have entered retirement phase with assets of around $650,000
An alternative to cash accounting would be to assess the retirement obligations of the fund’s members. This would have each member set a retirement objective and then assess the corresponding fund liability.
- This would set a benchmark for the fund’s assets.
- There would be an incentive for members to engage when comparing their account balances to the fund’s liabilities.
- It would be a useful measure for financial planners to provide advice to members and trustees.
- Any changes to the retirement objectives of members could be explicitly measured and disclosed.
- The fund’s investment returns could be benchmarked annually against the assumptions used to determine the value of accrued liabilities.
The concept of accrued benefits and liabilities is already well established internationally within both accounting and actuarial standards for superannuation and pension funds.
Furthermore by adding this value to the notes in the financial accounts, it would provide guidance to both trustees and members alike.
For an immediate assessment of your fund’s liability for its retirement obligations, please try our online calculator below:
Alternatively, you can download our submission to Treasury’s, “Review of Retirement Incomes in 2020,” – here.