It seems to be the fashionable financial talk of the moment (if that’s a thing!) – having a Self Managed Super Fund (SMSF). But what does this mean?
Most Australians have their super looked after by an industry super fund (e.g. Australian Super) or a retail fund manager (e.g. AMP, Colonial).
You also have the choice of setting up and managing your own super fund – an SMSF.
You can do this by yourself but your accountant and/or financial planner are valuable sources of advice for assistance.
The benefits of SMSF over other super funds include:
- You have direct control over how your super is invested.
- You can invest in a greater range of investments e.g. direct property, unlisted investments, collectables, etc.
- You have better options in regards to nominating your beneficiaries (i.e. how your super is paid out if you pass away) which can be great for blended families.
- With bigger balances, it can be more cost effective.
- There are taxation advantages with managing pensions, franking credits and capital gains tax.
The disadvantages include:
- You will be legally responsible for the fund, its investments and the lodging of tax returns. You need to be aware of & abide by the trust deed rules, the SIS Act (superannuation legislation) and the Corporations Act duties.
- If you do not abide by the above, you can be personally liable (i.e. fines payable from your personal assets) and even sent to prison.
- It will require much more time and effort to look after your retirement benefits.
- The habit of SMSFs to invest predominantly in cash and Australian shares opens them up to investment risks.
So should you consider one?
A lot of retail funds now offer term deposits, direct shares and pass the taxation advantages directly to member accounts so a lot of the old reasoning for using SMSFs no longer applies.
As such a lot of the reasoning for SMSFs now is around owning residential property (including a limited loan arrangement) or purchasing your own business premises.
Self Managed Super Funds are definitely not for everyone but it never hurts to ask your financial adviser the question!