Flexibility and control with Self-Managed Super Funds
Self-Managed Super Funds (SMSFs) are a continually growing segment within the superannuation industry. While they might not be the right financial solution for everyone, they can offer you flexibility and control of your finances.
What are the benefits?
- An SMSF can give you additional control over the investment of your retirement savings.
- It provides the ability for you to invest in assets not available in retail super funds.
- It also enables you to implement cost and tax minimisation strategies.
How does an SMSF work?
An SMSF is a superannuation fund with up to four members. Members make contributions into the SMSF and the fund uses these contributions to purchase investments which are owned by the SMSF. The SMSF has a cash account which is used to accept contributions and investment income.
The SMSF maintains records to identify the value of the various member accounts. Once a member meets a condition of release, they have access to their account and can request the SMSF pay their benefit in the form of a lump sum or income stream.
- Control – a common motivation for setting up an SMSF is a desire for control over retirement savings, including investment decisions. An SMSF gives you freedom to set your own investment strategy and select the underlying investments.
- Investment choice – an SMSF can provide you with opportunity to invest in assets which may not be available in public offer superannuation funds, such as your business premises if you run a small business, artworks, vintage cars or wine.
- Cost reduction – the costs associated with running an SMSF can be less compared to a retail fund if your SMSF has a large balance. This is because most SMSF costs are fixed, so they represent a smaller percentage of the total balance the larger the SMSF balance is. This compares to most retail funds that charge fees by percentage, so the higher your account balance, the higher the fees. An SMSF also gives you control over buying and selling investments which allows you to incorporate tax strategies and/or market expectations.
- Flexibility – an SMSF is a highly personalised and flexible trust which can facilitate a range of strategic options, potentially covering the retirement and estate planning needs of a whole family. For example, an SMSF might allow you to transfer personal assets (such as listed shares) into the SMSF so the asset can benefit from tax concessions, and it might give discretion over the form and manner in which death benefits are paid.
- Onerous legal and compliance obligations – SMSF trustees are ultimately responsible for running the SMSF. This means you need to keep up-to-date with changes to superannuation, tax and corporate legislation. You also need to ensure all reporting and administration obligations are complied with on an annual basis. Although many of these duties can be outsourced, you (as trustee) are still ultimately responsible for all decisions made.
- Lack of time or expertise – keeping up with investment markets can be time-consuming. You need time and expertise to manage the SMSF’s investment portfolio otherwise poor investment performance may result. Although investment management can be outsourced, this would add another level of expense.
- No access to certain government bodies – SMSF members do not have access to the Superannuation Complaints Tribunal (SCT) which provides retail fund members with a cost-effective way to resolve issues with trustees. Instead, if a dispute arises between SMSF trustees and members that cannot be resolved, legal action may be required which could be costly. SMSF members also do not have access to government financial assistance which is available to retail fund members if a retail super fund suffers a loss due to fraud or theft.
Setting up a SMSF may involve consulting with a number of professionals, including solicitors, accountants and an Elders Financial Adviser. Our expert team will help you with an appropriate investment strategy suitable for your fund.
Keep in mind that while an accountant or solicitor may help you establish a SMSF, they cannot advise you on whether you are making the right financial decision unless they hold an Australian Financial Services licence.
Instead, an Elders Financial Adviser who has the specialist Self-Managed Super Fund accreditation can do this for you, taking your personal circumstances and needs into account.
Find out if SMSF is a suitable strategy for your retirement savings.