Is a Self Managed Super Fund (SMSF) right for me? (part 1)

Thinking about setting up an SMSF (Self Managed Super Fund)? For many people, SMSFs are a great option for building retirement savings, but they may not be suitable for everyone. In this first of a two-part series, we explain some of the key differences between SMSFs and public offer funds.

While public offer funds are managed by professional licensed trustees, the management responsibility for SMSFs lies with the members. Every SMSF member must be a trustee of the fund (or, if the trustee is a company, a director of that company). This is an advantage for those who want full control over their superannuation but it also means the members are responsible for complying with all superannuation laws – and administrative penalties can apply for non-compliance.

If you intend to move overseas for some time (eg for a job posting), an SMSF could be problematic because it may be hit with significant tax penalties if the “central management and control” moves outside Australia. On the other hand, members of public offer funds can move overseas without risking these penalties because their fund continues to be managed by a professional Australian trustee.

Costs are a key factor for anyone considering their super options. Fees charged by public offer funds vary, but are generally charged as a percentage of the member’s account balance. However, SMSF costs tend to be more fixed. As well as establishment costs and an annual supervisory levy payable to the ATO, SMSFs must hire an independent auditor annually and most SMSF trustees rely on some form of other professional assistance. For members with modest balances, an SMSF will often be more expensive than a public offer fund, but this needs to be weighed up against the other benefits of an SMSF.

Benefits of a SMSF

A major benefit of an SMSF is that the member-trustees have full control over their investment choices. This means they can invest in specific assets, including direct property, that would not be possible in a public offer fund. SMSF members can also transfer their business premises into superannuation and take advantage of gearing strategies by borrowing to buy property or even shares through a special “limited recourse” borrowing arrangement.

However, with control comes responsibility. SMSF trustees must create and regularly update an “investment strategy” that specifically addresses things like risk, liquidity and diversification. Being an SMSF trustee therefore means you need to be prepared to seek the right professional advice.

Contact our office to begin a discussion about whether an SMSF can help you achieve your retirement goals.