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Self-managed super funds
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The pros and cons of do-it-yourself super
Australians are increasingly opting for DIY when it comes to super. Self-managed superannuation funds (SMSFs) are the fastest-growing fund type in Australia, with about half a million SMSFs representing a million members, or 10% of Australia's total super members (at June 2014).
But the complexity of running your own super fund means SMSFs are not for everyone. SMSF members tend to be older, have a higher income and larger super balances.
Pros of self-managed super
- You're in control. Asset allocation, tax strategies, insurance options and retirement planning—it's all up to you.
- You have flexibility over where your super is invested—cash, fixed interest, property, Australian shares and international shares (as long as you comply with regulations and the fund is operated for the purpose of building retirement wealth).
- SMSF trustees can lodge their tax returns later than some other types of fund, allowing them to invest a greater percentage of funds under management.
- You can choose from a complete suite of insurance options, including life and trauma insurance.
- Your investment strategy can incorporate a transition-to-retirement strategy using a non-commutable allocated pension.
Cons of self-managed super.
- SMSFs can be expensive—the average annual cost of running a medium-sized fund is about $2000. An SMSF is usually not advisable if the fund assets are likely to be less than $200,000. So it's not surprising that the average annual member balance is $454,000—more than six times the industry average of $70,000.
- Most people find it hard enough keeping up with their current super, let alone running their own fund. Administering an SMSF is complex: you need to draw up a trust deed setting out trustee powers, benefit payments and exit strategy, create a separate bank account, keep accurate paperwork, produce annual operating statements, keep copies of annual returns and appoint an approved auditor.
Other things to note about SMSFs:
- You can't use an SMSF to fund the purchase of a business, holiday home or golf club membership. Generally, you can't acquire assets from a related party, borrow money or allow in-house assets to exceed 5% of the total fund assets.
- Be wary of schemes to withdraw your super early. The ATO hands out heavy penalties for those who illegally withdraw from schemes early.
Before considering an SMSF, it's worth asking:
- Is the fund strictly for retirement benefits?
- Do you have the time and skills to run your own super fund?
- Will the benefits be worth the costs?
- How will switching affect your current super benefits, services and fees?
We can help
With greater control comes greater responsibility, but the right financial advice and support can make it easier. If you're considering a self-managed super fund, talk to one of our financial advisers about whether it's the best option for you and your family.
All statistics from www.ato.gov.au