What is an SMSF?
A Self-Managed Super Fund (SMSF) does what it says on the tin – you manage your superannuation yourself, instead of delegating the management of your retirement savings to a large institution. In practice, very few people “Self Manage” their retirement savings entirely as they enlist the help of an adviser to guide them. Perhaps a better name is a Family Super Fund or a Closely held super fund.
The main difference between an SMSF and large super fund is that the SMSF is run directly by its members (as trustees). This allows you more control over your retirement savings while you earn, when you retire and when you die. The members run the fund for their own benefit, and they have to ensure compliance with all of the regulations, legislation, and taxation requirements for the super fund.
Is it right for you?
There are a few good reasons why people choose to set up and run an SMSF. The main benefit is that you have a lot more control – you can choose how your money is invested, with help from an adviser if needed. You also have access to a wider range of investment options, including direct property, unlisted companies, artwork, term deposits, cryptocurrency and physical gold. There are some restrictions and parameters to what you can/can’t invest in, but the options are a lot broader than in most other super funds.
Some people enjoy feeling that they can play a more active role in managing their retirement savings, especially if they have certain investments in mind that they would like to explore. When you’re in control of your super, you can also make changes to your investments more easily, meaning you can potentially react quickly to new opportunities or changes in the market. Other people think it’s the right choice for them because they already run their own business or they have a lot of experience in financial markets, so they want to make the most of their knowledge and expertise and apply it to their super.
An SMSF is governed by the same rules that apply to large super funds, so having one isn’t a license to get your hands on your retirement savings earlier than laws allow for. Large super funds can have several million members, whereas a SMSF can only have up to 6 members. This generally sees couples and other family members combine their savings and work together to plan for the future. Combining super in this way can open up a wider range of investments, for example purchasing investment property.
The risks and downsides
However, there’s no denying that running an SMSF takes more work and requires more engagement from the members. There are strict rules that need to be followed to make sure you are compliant with the ATO and other regulators, including the type of investments that you can own and how the fund is administered and reported. Consequently, you need to be prepared to get involved in the management process and take the necessary steps to ensure compliance.
Depending on your account balance, the administration costs of an SMSF may be higher or lower than using a retail/industry fund. As such, you need to be confident that the benefits to you and your family outweigh the costs, otherwise any investment returns might be eaten up by management costs and your super balance might not flourish as you want it to.
If you would like to find out more about whether a SMSF is right for you, please get in touch.
Disclaimer: This publication has been prepared for general information purposes only. It is not specific advice to any particular person. You should consult an authorised Align Financial adviser before making financial decisions.
