Is a self-managed super fund right for you?

Apr 5, 2017
minute read

Is a Self Managed Super Fund right for you?

A Self Managed Super Fund (“SMSF”) gives you more control over your super fund, however, there are a number of duties and responsibilities that come with having them, so make sure you understand what’s involved before you take the leap. SMSFs are not right for everyone, in this article, we will review the advantages of SMSFs and why thousands of Australians have decided to go this route.

Key Benefits of a Self Managed Super Fund

1. SMSFs gives you more investment choices

Most people opt for an SMSF to give them more control over the investments they are able to have access to. The choice of investments and the investment strategy for their money is much wider in terms of investment choice (such as direct shares, direct property, managed funds etc) compared to industry and/or retail superannuation funds.

You also have the ability to have more sophisticated investment strategies within your SMSF i.e. within equities, being able to access derivative based strategies such as instalment warrants. This is particularly useful in difficult or falling markets. Other examples include small business owners leasing their business real property (that is used by their business) from their SMSF, borrowing to invest via instalment warrants, direct property investments, and other types of investments

2. Better tax control

As a trustee of an SMSF, you have more control and flexibility to manage the tax position of the fund. This means being able to position your strategic investment planning such as maximising franking credits and or payment of pension income streams. Tax can be significantly reduced particularly for those in retirement.

There is also greater flexibility when dealing with the tax liabilities of the fund itself, as the fund only does one tax return, even though there can be up to 4 different members in the fund.

3. An SMSF makes looking after your family easier

SMSFs also provide excellent Estate Planning opportunity, allowing you to plan your and your family’s financial future. In a very tax efficient manner. This includes being able to leave tax-advantaged (sometimes tax-free) income streams to dependant beneficiaries, with control around when they receive a lump sum or an income stream.

You can also make them binding so they do not lapse, unlike commercial super funds which have to be continually updated.

4. Borrowing

A few years ago new rules were introduced which allowed superannuation funds to borrow money under a particular type of arrangement. These new rules can be fully utilised by SMSFs, however, they have limited application in large commercial super funds. This ties in with the “Investment choice” benefit mentioned above, whereby this now makes it much easier for trustees to acquire direct property in their Fund’s as property is usually a big ticket item, and generally, requires an element of borrowing.

5. Cost efficient

For many people (but not all, and depending on your account balance), the cost of running an SMSF can be significantly lower than an alternative retail, industry or other commercial super funds.

The main cost for an SMSF is the completion of the annual administration requirements of the fund, which sits around the $2,000 to $2,500 pa mark.

Commercial super funds, on the other hand, tend to charge as a % of your fund balance, with a range of around 1% to 2% pa, so on a fund of $350,000 this could be $3,500 – $7000 (and remember, that can be made up of up to 4 members’ balances combined.

6. Pension Planning

Once you get closer to retirement, the SMSF allows the most seamless transition from accumulation into flexible income streams. As with all super funds, the ability to take tax-free income streams on retirement is a big incentive to stay within the superannuation environment, and as seen by the above benefits, it offers a lot of flexibility in terms of how you go about it.

7. Asset Protection

Within an SMSF, your assets are protected from litigation and bankruptcy, even if you withdraw some of this to live on. Note that this is the same with commercial super funds.

The information provided above is for general information only and you need expert advice and guidance to ensure that you not only set up but also manage your SMSF in a way that will provide you with maximum benefit.

Chat to our team if you're looking to get advice on self-managed super funds, we'd be happy to help.

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