A popular choice for managing superannuation is to take personal control via a self-managed superannuation fund (SMSF).
Although membership is limited to a maximum of four people per fund, the Australian Tax Office (ATO) reports there are almost 600,000 SMSFs, representing more than 1.1 million members. It estimates the value of assets held within SMSFs is more than $681 billion!
So, what’s the attraction? Below are some key advantages of managing your own super:
- Control. With SMSFs, all members of the fund are also trustees and are therefore responsible for all decisions. They are required to manage the fund in accordance with current superannuation laws.
- Flexibility. Trustees can seek the assistance of administrators and licensed advisers to help them meet and maintain their legal responsibilities in the running of their fund or they can do it all themselves.
- Investment choice. A much wider range of investments is available to trustees than may otherwise be offered by retail or industry funds. This allows maximum flexibility in investment selection, especially for geared investments and non-traditional assets like artwork, bullion and certain types of landholdings. There are, however, strict rules that govern how personal use assets and collectibles held in SMSFs are stored.
- Direct property. An SMSF can invest in direct property, whereas retail funds usually cannot. In addition, a business property owned outside superannuation can be transferred into an SMSF. For many self-employed people, having their SMSF own their business premises can make financial sense.
- Cost savings. SMSF fees are usually fixed whereas retail super funds are charged as a percentage of the account balance so for accounts over for example, $250,000, it may be more cost-effective to establish an SMSF than to use a retail fund.
- Taxation. SMSFs can allow trustees to take a more tailored approach to managing taxation, especially when it comes to capital gains tax.
- Insurance. SMSFs can hold life, temporary and permanent disability insurance on their members. This can be a tax-effective way of managing both the cost of the insurance and any future insurance payouts.
- Estate planning. The trust deed for an SMSF may allow for binding death benefit nominations. A will can be challenged in court, but under a properly executed binding death benefit nomination trustees must pay a death benefit as directed. This can provide greater certainty in the distribution of assets.
Despite the detailed legal responsibilities attached to SMSFs, it is clear that many people find the ability to manage their retirement nest eggs highly rewarding. Although there are many things to consider when converting your super funds to an SMSF, the added choices, flexibility and cost effectiveness may outweigh the additional time taken for administrative purposes.
Get in touch with us if you would like more information to help you determine if a SMSF might be right for you.