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Protecting your SMSF

Most self-managed super fund trustees don’t give much thought as to how much professional indemnity (PI) insurance their advisor has.

But since PI insurance is the only course of action to recover lost funds for trustees who become victims of fraud or negligence, it is an essential prerequisite trustees should be aware of.

PI insurance is insurance that provides financial compensation to trustees in the event that the advice they have been given proves to be negligent.

Unfortunately, there are many cases of negligent advice. Negligence becomes a factor when an adviser alludes to a particular idea or strategy they don’t understand or know to be deceitful (or even fraudulent) and encourages a trustee to think about it in a positive way.

SMSFs are all about individuals taking responsibility for their super, which includes being aware of circumstances where things can go wrong.  Therefore, one of the essential prerequisites for anyone engaging an SMSF adviser is to be aware of the professional indemnity insurance they have. That involves directly asking them how much insurance cover they have and whether or how it covers the services they offer.

The advisor should provide this is information in writing as it may need to be referred to in case there is cause to make a claim against it.

Competent SMSF advisers will have read a trustee’s fund trust deed and not give advice that is contrary to what it states, as doing the latter can be regarded as negligent.

Anyone who is competent enough to provide specialist SMSF advice has professional indemnity insurance, including accountants, financial advisers, auditors, SMSF administrators and tax agents.

Questions to ask about PI cover is whether it captures all the advice about services that are provided e.g. strategic advice about super pensions such as transition to retirement pensions.

Knowing what services are not covered under PI insurance and why this is so is also just as important. An entitlement a fund could win when successfully challenging an adviser under a PI insurance claim is restoring the fund to what it was before the advice was given.

Posted on 21 April '16 by , under Super.

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Transition to retirement

The transition to retirement (TTR) strategy allows you to access some of your super while you continue to work.

You are able to use the TTR strategy if you are aged 55 to 60. You can use it to supplement your income if you reduce your work hours or boost your super and save on tax while you keep working full time.

  • Starting a TTR pension: To start your TTR pension, transfer some of your super to an account-based pension. You have to keep some money in your super account so that you can continue to receive your employer's compulsory contributions as well as any voluntary contributions you may be making.
  • Government benefits and TTR: The benefits you or your partner receive might be impacted if you choose to opt for this strategy. How and what exactly will change might become clearer upon discussing this with a Financial Information Service (FIS) officer.
  • Life insurance and TTR: In some cases, the life insurance cover you have with your super may stop or reduce if you start a TTR pension – check this before making any decisions or changes.

TTR can help ease your mind as you transition into retirement but it can be a bit complex. Before you choose whether you want to use TTR to reduce work hours or save on tax, or even if you want to use TTR altogether, you should figure out how this will impact all aspects of your finances.

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