More than one in five Australian’s don’t check their superannuation at least once a year. On the flip side, there is a portion of Australians who manage their superannuation entirely by themselves, and while it comes with additional administrative requirements and responsibilities, it also provides benefits that can’t be accessed through your typical superannuation fund.
What is a Self-Managed Superannuation Fund?
A self-managed super fund (SMSF) is a private superannuation fund that you oversee personally, giving you greater control over how your retirement savings are allocated.
Members of an SMSF are required to act as trustees (or directors in the case where the trustee is a company) and are also the beneficiaries of the fund. This structure places the responsibility for investment decisions and ensuring compliance with superannuation and tax regulations directly on the members. This level of personal involvement is a key difference between SMSFs and industry or retail super funds, which are managed by professional financial institutions.
What are the advantages of a Self-Managed Superannuation Fund?
SMSFs provide several benefits for individuals who want greater control and flexibility in managing their retirement savings:
1. Greater Control Over Investments
SMSFs allow members to directly manage and decide where their superannuation is invested. This control enables tailored investment strategies aligned with individual goals, risk tolerance, and retirement objectives.
2. Wider Range of Investment Options
SMSFs offer access to investment opportunities beyond those typically available in industry or retail super funds. These include:
Direct property investments (residential or commercial)
Collectibles such as art or rare coins (subject to regulations)
Physical gold and other precious metals
3. Tax Efficiency
Like other super funds, SMSFs benefit from concessional tax rates of up to 15% on earnings. They also offer flexibility to implement strategies for tax savings, such as managing capital gains or leveraging franking credits to maximise after-tax returns. Once in the pension phase, earnings even become tax-free.
4. Cost Effectiveness for Larger Balances
For larger balances or multiple members (up to six), SMSFs can be cost-efficient as administration fees and other costs are shared. This allows more funds grouped and to remain invested to grow over time.
6. Business and Property Benefits
Business owners can use a SMSF to purchase commercial property and lease it back to their business at market rates, creating tax and cash flow advantages.
What are the disadvantages of a Self-Managed Superannuation Fund?
While SMSFs offer flexibility and control, they also come with several challenges and risks that individuals should carefully consider before setting one up:
1. Responsibilities and Management
As an SMSF trustee, you are legally responsible for managing the fund, including:
Ensuring compliance with superannuation and tax laws
Maintaining accurate records
Keeping the fund aligned with its sole purpose of providing retirement benefits
Managing investments
Completing annual reporting and audits
Staying informed about regulatory changes
Having a good accountant and financial adviser on your side can relieve you of much of the time burden and confusion of these tasks.
2. Costs to Set Up
SMSFs are traditionally more expensive to establish and maintain, especially for smaller balances. Costs include:
Setup fees
Administration and audit charges
Legal and accounting expenses
For lower balances, these costs may outweigh the benefits and erode investment returns. However, there are more cost-effective options that are coming onto the market that are accessible through financial advisers which may suit those with a smaller balance but still wanting the benefits of a SMSF.
3. Liquidity and Diversification Risks
Many people are attracted to SMSFs because of the ability to borrow funds to purchase property. Investing in illiquid assets, such as property, can create cash flow challenges if unexpected expenses arise or members need to access funds. Additionally, over-concentration in one asset class (e.g., property) can increase risk.
Is a Self-Managed Superannuation Fund right for me?
Deciding whether a SMSF is the right option for you depends on your financial situation, goals, and willingness to take on the responsibilities of managing your superannuation. An SMSF might be worth considering if:
1. Your superannuation balance exceeds $250,000. While there is no set minimum required to establish an SMSF, having a balance of $250,000 or more can make it cost-effective as a higher balance ensures the expenses represent a smaller proportion of your overall fund.
2. You are interested in how your superannuation is invested and would like more transparency and flexibility in your investment options.
At Northhaven, we can guide you through this decision by reviewing your financial position and goals, helping you understand the potential advantages and risks of a SMSF. If it is the right option for you, we can create a strategy that aligns with your goals and needs while ensuring compliance with regulations and providing professional advice on the complexities of investment management.
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