Salaried employees who start their own businesses are increasingly ignoring super. As a consequence, they could see their savings going backwards in a low-interest world, a wealth adviser says.
The early days as a small-business owner are a critical time for setting disciplined savings goals, even if it’s a small amount to build the habit, says Lindzi Caputo, a manager in the wealth division at HLB Mann Judd. Those who don’t may not realise they could be eroding their balances, thanks to a combination of high fees and low growth, she warns.
“What can happen is their super is stagnating – that’s a bad thing because it’s not growing – but what’s even worse is if they don’t have enough to cover the fees and insurance premiums of their fund, they might actually be eroding the value of their super.”
This could be particularly troublesome for owners of small to medium-sized enterprises (SMEs) who are reliant on the sale of their business for a comfortable retirement, because that carries a degree of risk.
HLB Mann Judd has written to all of its clients to urge them to make the most of the bring forward rule, if they are able to, before the July 1 deadline.
For the group’s client base, the majority of questions about super changes have come from retirees, with few small-business owners looking at strategies to build their retirement savings in response to last year’s budget changes. Very few questions have been raised about the innovation inducements for start-ups.
Caputo acknowledges that may be because the practicalities of raising a family and paying a mortgage or rent often mean superannuation is an afterthought for SMEs.
While there’s no easy answer, raising awareness early and setting a plan early to build wealth outside the business tends to lead to better outcomes, she says.
“What we want them to do is extract that wealth [from the business] over time,” she says. “Building wealth isn’t something that happens automatically overnight; it’s a slow and steady process that you take.
“What we’re looking to do with business owners is to get them into a more disciplined approach.”
From the onset, Caputo says, SME owners should pay themselves a salary and resist the urge to dip into the business’s assets for personal expenses and vice versa.
