Self-Managed Super Funds (SMSF)

A SMSF is a private superannuation fund that you manage yourself. They are a legal structure where you can drive the investment of your super balance and administer your retirement income. SMSFs are regulated by the Australian Taxation Office (ATO) and allow up to six members, who are typically also the trustees, meaning they are responsible for the fund’s management in compliance with superannuation laws.

There are many benefits to having an SMSF, if you are also prepared to take on the risks and responsibilities.

Pros of an SMSF:

• Investment Control: Directly control how your super is invested, tailoring your portfolio to better meet personal financial goals.
• Tax Advantages: More flexibility around the timing and amount of contributions and pension payments, which can lead to significant tax benefits.
• Estate Planning: Superannuation is treated separately from the assets in your will, allowing for effective intergenerational wealth transfer.

• Larger Investments:Your SMSF could investment in assets (such as shares and property) by using cash in your fund and borrowing the rest.

• Cost Control: Potentially lower costs in comparison to retail or industry funds, which often charge fees proportional to the amount invested.
• Asset Protection: Assets within superannuation are generally protected from creditors.

Cons of an SMSF:

• Compliance Risks: Strict legal obligations come with hefty penalties for non-compliance.

• Time and Cost: Establishing and managing an SMSF can be time-consuming and expensive. There are also ongoing fees such as auditor fees, annual accounts and return preparation costs.

• Investment Risks: Poor investment decisions can significantly impact your retirement savings.
• Regulatory Changes: Keeping abreast of changes in superannuation laws is crucial.

• Fraud: If you are a victim of theft or fraud, you can’t claim government compensation which is available to industry or retail super fund members.

Operating an SMSF requires adherence to the Superannuation Industry Supervision Act and compliance with tax laws. Trustees must understand these requirements to ensure the fund is compliant, as well as stay informed about regulatory changes.

While this sounds daunting, most SMSFs only have two trustees (usually partners) who invest in cash and Australian shares, making their compliance obligations relatively straightforward.

Once set up, there are ongoing tasks that you will need to take care of, such as:

• Managing employer contributions and accepting contributions within limits
• Making investments
• Reviewing your investment strategy
• Documenting and maintaining records
• Valuing the assets within the fund
• Prepare accounts and financial statements annually
• Undertake audits with a registered SMSF auditor
• Lodge annual tax returns
• Pay the SMSF levy and any tax that is due

When payments start being made from the fund you will need to:

• Ensure minimum payments are met each year (which might mean selling assets within the fund)
• Appoint an Actuary
• Withhold tax
• Issue payment summaries to members as well as the ATO

Whilst this seems overwhelming, many trustees engage financial advisers and accountants to help them with their SMSF.

An SMSF can be a powerful tool for managing retirement savings, offering significant benefits in terms of investment choice, tax strategies, and estate planning. However, the decision to manage an SMSF should not be taken lightly. It requires a commitment to understanding the legal and tax obligations and actively managing the fund’s investments.

For those without the time, interest, or expertise to manage an SMSF, other superannuation options may be more appropriate. It’s advisable to consult with a financial adviser to determine if starting an SMSF aligns with your financial goals and personal capabilities. This decision should fit into a broader financial plan that addresses your long-term retirement objectives.

Navigating the path to setting up and managing your SMSF can be challenging, and many find it beneficial to have knowledgeable advisers by your side. We can help you with the creation, administration, and investment strategies for self-managed super funds.

Not sure if a SMSF is right for you? Our SMSF specialist team can answer all your questions and help you evaluate the benefits and risks based on your situation.

Or perhaps you want an investment strategy for your existing SMSF. We can create a customised strategy based on your risk profile, goals, and investment preferences, so you make informed decisions that align with your financial goals and retirement aspirations.