In simple terms, a self-managed superannuation fund (SMSF) is different to regular super funds because it is run by you.
Close to 600,000 SMSFs are now active in Australia, according to statistics released by the Australian Taxation Office. Statistics also show the average balance of a SMSF now exceeds $1 million, with the ‘average’ fund balance now around $1,050,000.
A SMSF will give you more control over your super and retirement planning, but it’s not a decision to be taken lightly as it carries responsibilities. So, is a SMSF right for you? Let’s take a look at the pros and cons.
One of the biggest benefits of having a SMSF is control. Considering superannuation is the second biggest asset behind the family home, running an SMSF gives you greater control over your choices in the financial space.
Did you know SMSFs provide more investment options than any other super fund? Trustees can access direct shares, high-yielding cash accounts, term deposits, income investments, direct property, unlisted assets, international markets, collectables and more.
SMSFs come with tax concessions dependent on your personal circumstances and investment strategy. In the accumulation phase, tax on investment income is capped at 15% and in the pension phase, there is no tax payable.
SMSFs with balances above $200,000 or so, may have lower fees than many industry super funds.
A SMSF allows up to three other members, including a partner, spouse or other family members. Consolidating allows for the creation of a bigger balance, which increases investment opportunities.
Managing your SMSF involves significant time and effort. You need to invest the time in complying with trustee responsibilities, as failure to do so can result in serious consequences.
The Australian Securities & Investments Commission (ASIC) suggests the costs of establishing and operating an SMSF with a balance of $200,000 or less is unlikely to be competitive compared to a large super fund.
As trustee, you are responsible for keeping records and meeting other requirements. Failure to comply with superannuation laws have severe consequences. The Tax Office, as the regulator of SMSFs, has the power remove a fund’s complying status.
Are you aware of all the legalities involved when it comes to SMSFs? Do you understand the different investment markets? Do you know the tax implications? Ideally, SMSF members should have a more in-depth understanding of at least the basics of sound investment practices than members of big funds.
If you’re thinking about setting up your own SMSF, you need to do be committed. As the administrator of a SMSF, you have legally binding responsibilities. The viability of a SMSF varies greatly depending on how much money you have, what other investments you have and what your overall goal is for your retirement.