SMSFs are private superannuation funds that you manage yourself. Unlike traditional funds managed by larger institutions, SMSFs give you direct control over how you invest your retirement savings. They offer a personalised approach to managing your superannuation, allowing you to tailor your investment strategy to best suit your retirement goals.
How does an SMSF work?
An SMSF operates much like any other super fund, with the key difference being you’re in the driver’s seat.
It starts with setting up the SMSF. This involves choosing your trustees, creating the SMSF trust deed, and registering the fund with the Australian Taxation Office (ATO). Once established, the fund can receive super contributions and rollovers from other super funds.
When it comes to investing, the choice is yours. There are a vast array of SMSF investment options. Whether it’s shares, property, fixed-interest investments, or even collectables, the decisions rest in your hands. However, it’s essential your investments align with your SMSF’s written investment strategy and comply with superannuation laws.
Managing an SMSF requires diligence and time. The fund’s trustees must handle the administrative tasks, ensure the SMSF’s compliance with superannuation laws, and arrange an annual audit. It’s important to remember that while managing an SMSF offers greater control and flexibility, it also carries greater responsibility. However, with the right guidance and advice, it’s a responsibility many find rewarding.
Self Managed Super Funds: Pros and Cons
Control and flexibility
As an SMSF member, you have greater control over your investment decisions. This means you can tailor your strategy based on your financial goals and risk appetite.
SMSFs offer a wide range of investment options that may not be available in other funds. These can include direct property, shares, and even collectibles.
SMSFs provide opportunities for tax planning that can potentially lead to significant tax savings.
SMSFs allow up to six members, allowing pooling resources with family members, potentially reducing costs, and increasing investment opportunities.
SMSFs provide more flexibility in estate planning, allowing you to set specific conditions on how your benefits are paid after your death.
With an SMSF, you can clearly view your super’s performance and the associated costs.
Managing an SMSF can be time-consuming. You’ll need to make investment decisions, keep comprehensive records, and ensure compliance with superannuation laws and regulations.
While having control over investments can be a positive, it also means you’re at risk if your investments perform poorly. Unlike with APRA-regulated funds, there’s no government compensation if things go wrong.
Non-compliance with regulations can lead to significant penalties. It’s crucial to understand and abide by all superannuation laws.
Acquiring adequate insurance coverage can be more expensive for SMSFs when compared to conventional funds.