Superannuation is a fundamental element of retiring in a financially sound and secure way. In many ways, Australia’s superannuation system is admired worldwide and plays a significant part in the national strategy of funding our ageing population beyond retirement. However, there is some frustration from fund members that retail and industry super funds are not meeting all their needs and expectations. As a result, many people look to alternatives, one of which is opening their own Self-Managed Super Fund (SMSF).
What is an SMSF?
An SMSF is a legal structure regulated by the ATO and an alternative option for you to take complete control of your retirement and future finances.
One of the main differences between an SMSF and a Regulated Superfund is that SMSF members are also the fund’s trustees, and there can be no more than six members. SMSF members are fully responsible for complying with Australian superannuation laws.
What are the benefits of an SMSF?
For those who are willing to manage the legal and financial elements of running a fund, entering into an SMSF offers a range of benefits that can maximise your future wealth, such as:
- Investment choice – trustees can potentially access direct shares, term deposits, income investments, direct property, unlisted assets, international markets and more.
- Tax strategies – Like all super funds, SMSFs also benefit from concessional tax rates. This can help you grow your super savings and reduce tax payments as you work towards retirement.
- Flexibility – multiple members can run a mixture of accumulation and pension accounts which you can adjust to suit the market conditions or personal circumstances.
- Transparency – significant transparency allows trustees to align their investment decisions with their personal goals, ethics, and principles. This allows complete visibility of performance, investment types and tax treatment.
- Cost – SMSF trustees must lodge an annual tax return and audit and pay ATO fees. As the fund grows, the more cost-effective it will become. However, the total costs are dependent on investments and costs associated with engaging professional assistance. The cost of managing a small SMSF starts at around $3,500 per annum. This cost increases depending on the complexity of the fund members’ situation and the investments made.
- Consolidate super assets – An SMSF currently allows a trustee to combine their superannuation assets with other members such as partners or family members. This can create a larger fund balance, increasing the fund’s assets and investment opportunities with only one set of fees.
What are the risks of SMSF?
While controlling your super sounds appealing, it can be a lot of work and comes with risk. It’s important only to proceed if you’re 100% prepared and committed to managing the fund.
- You are personally responsible for all your Self-managed fund decisions, even if you have acquired professional assistance or another member made the decision.
- Your investments may not provide the returns you anticipate.
- You remain responsible for managing tour fund even if your personal circumstances change, such as losing your job.
- A negative impact may occur on your SMSF if member relationships break down or a member becomes ill and/or passes away.
- If you lose money through theft or fraud, you won’t have access to compensation schemes or the Australian Financial Complaints Authority (AFCA).
- If moving from an industry or retail super fund, you could lose insurance.
Time and money
Even when outsourcing for professional help, setting up and managing an SMSF will take considerable time and money. You need to research, set and follow investment strategies, accounting, maintain records and arrange an audit each year by an approved SMSF auditor.
Ongoing costs include:
- Tax advice
- Legal advice
- Financial advice
SMSF trustee responsibilities
As an SMSF trustee, you decide how your fund is managed and control where your money is invested. There are two types of trustees available:
Corporate trustee – the company acts as the trustee, and each member is a director. This allows simplified recording and asset registration together with efficient admin management and membership flexibility. Establishment and ongoing fees are included in this structure.
Individual trustee – each fund member is appointed as a trustee, with a minimum of two trustees required. As a trustee, you are responsible for all investment decisions and implementing suitable investment strategies for your fund.
SMSF trustees need the financial understanding and legal knowledge to:
- Differentiate between investment markets as well as build and manage a diversified portfolio,
- Set and maintain investment strategies that meet your risk levels and retirement needs,
- Comply with tax, super, investment regulations and laws,
- Organise insurance for fund members.
Creating and maintaining an SMSF fund can be a time-consuming and challenging process. It is recommended that you engage the services of a qualified SMSF specialist, who can assist in managing the accounting, auditing, tax reporting, etc., and provide sound financial and investment advice.
Contact Numble today to chat about how we can point you in the right direction for the best SMSF advice. We can also help manage your SMSF bookkeeping to remain legally compliant and avoid costly mistakes.