Advivo’s experienced SMSF Accountants delve into the advantages of running a self-managed super fund.
As the name implies, a self-managed super fund (or SMSF) is a private superannuation fund that you control yourself. A sole purpose of an SMSF must be to provide retirement benefits that are unachievable from an industry superannuation membership. As such, there are many benefits of having an SMSF including:
1. Choice of Investment
SMSFs offer options for investments that are not possible in other superannuation funds. Providing the investment adheres to regulations, an SMSF can invest in almost anything desired, including investing in direct property. An SMSF gives you the opportunity and freedom to make investment decisions that are not at all possible when you are a member of industry super funds.
2. Control & Flexibility
It is no surprise that the main reason people give for choosing an SMSF is control. An SMSF will allow you to have control and flexibility over how your retirement savings are invested. An SMSF will allow you to have substantially more control over how your funds are invested. It will allow you to invest in all the products that are available to public super funds, as well as some products that are not available to public fund members. Managing your own super investments directly allows you to make quick adjustments following any changes in the market or take up any sudden investment opportunities.
3. Greater Flexibility with Tax
All super members are entitled to have their fund earnings and contributions taxed at the concessional rate of 15% in Australia. Benefits received after the age of 60 are tax-free. Whilst these tax benefits are available to all super members, SMSFs are able to be more flexible and take into account your group structure and use tax strategies that best benefit you and your situation.
4. Pooling Your Super
An SMSF membership gives you the ability to pool your superannuation resources with up to five other members. Pooling your resources with others will allow you to access investment opportunities that may not be available for you to invest on your own, such as direct property.
5. Estate Planning
An often-overlooked advantage of an SMSF fund is the added flexibility and planning for member death benefits. Unlike many public super funds which tend to require constant updates for death benefit nominations, SMSF can make binding death benefits nominations that do not lapse. SMSF members also have greater flexibility in how death benefits are to be distributed. For example, a member can arrange for death benefits to be paid to a dependant as a pension, rather than a lump sum which will allow the SMSF to continue operating after death. A member can also arrange for non-cash assets such as shares or property to be transferred to a beneficiary and allow funds to be tax effectively distributed to future generations.
6. Asset Protection from Creditors
SMSFs provide you with an effective way to protect your assets from any future claims from creditors or bankruptcy. This is because, in relation to the Bankruptcy Act, superannuation funds are not considered as property.
Whilst there are many great benefits for running an SMSF, it is important to understand the disadvantages of the fund. The cost of running an SMSF can be disadvantageous for you if the assets held within your fund are low in value. Many SMSF management costs are fixed and can completely erode low-value SMSFs. There are extreme penalties for SMSF non-compliance if you fail to comply with the super rules. You should consider hiring a team of SMSF accountants and superannuation services specialists to help ensure compliance with the rules.
An SMSF can cause issues in obtaining life and disability insurance. It can cause these insurances to be more expensive and harder to obtain than larger superannuation funds which can offer default levels of cover. Unlike members of industry superannuation funds, members of SMSFS are not eligible for any compensation if your fund suffers a loss as a result of fraud in the investment assets.
