Is a Self-Managed Super Fund Right for You?

Self-Managed Super Fund

Retirement is something that awaits every one of us – some sooner, some later. Be that as it may, most of us don’t pay too much attention to this issue until the years of retirement come knocking at our doors. This is, at the same time, one of the main reasons why younger people rely too heavily on government-managed superannuation funds and don’t look for any kind of alternative. And if we would just do a bit of investigation, we would see that the alternatives are more than intriguing.

This time, we will take a look at the so-called self-managed super funds (SMSFs) and some of the considerations you should make before choosing this retirement plan.

What is an SMSF?

Essentially, SMSFs are not that different from other similar superannuation funds that exist in any country in the world. The contributors are allocating a part of their salary to the fund so these assets can be made available to them once they retire. The main feature that separates this type of arrangement from all others is that the members of the fund are at the same time the trustees.

If we look for the more specific requirement, we would say that one superannuation fund can be called SMSF if:

  • The fund consists of five or fewer members
  • Every member is at the same time a trustee
  • No trustee receives remuneration as compensation for the services
  • The fund complies with local legislation

For instance, the SMSFs in Australia are regulated by Section 17A of the Superannuation Industry (Supervision) Act 1993 (SIS Act).

The benefits of SMSF

If we stay for a while in the Land Down Under, we can see the growing popularity of SMSFs. That shouldn’t be too much of a surprise because SMSFs offer plenty of unique benefits. Let us quickly go through some of the most important ones to see if this type of retirement model suits your needs.

Full control over the fund

As we’ve already seen, the members of an SMSF play at the same time the role of the trustees. That gives them full control over the assets of the fund. This may sound as too daunting of a task, but most of us can easily identify safe investment options. Even if you don’t consider yourself a skilled entrepreneur, you can always resort to the help of a third-party self managed super fund management service.

self managed super fund management service

Streamlined decision-making

The process of decision-making in some of the more robust fund types tends to be painfully slow and inefficient. Because of that, the trustees are not always able to use favorable conditions and make prudent investments. On the other hand, decision-making in SMSFs is held in the close circle that never extends beyond five people. Therefore, the trustees are in a much better position to exploit favorable trends.

Low operating costs

The math is pretty simple – the more people are involved in the fund, the larger is the number of fees, commissions, and premiums that needs to be paid. Here lies one of the main benefits of SMSFs – even if you put the fund under the management of a third-party company, the operating expenses will still be far lower than most of the available fund models.

Tax reliefs

Finally, we have to point out one more thing. In the case of some popular assets, operating through a fund will grant you certain tax reliefs. For instance, if you are running a rental property, the rental tax on capital income is 15%. If, on the other hand, the property is owned by an SMSF, the tax is reduced to only 10%. These exact numbers are taken from Australian legislation but similar reliefs exist all around the world.

The things to consider before investing in an SMSF

Now, let us quickly go through some of the considerations you should make before setting up an SMSF.

Although this model entails a surprisingly low number of real drawbacks, the fact remains that your financial outlook largely lies on your shoulders. That can prove to be too much responsibility for some to handle. Also, there is some fine print you should read before making long-term plans. For instance, the property run by a fund can’t be rented out to a related party. Be very careful when it comes to things like these – they can entail legal consequences.

We hope this short introduction gave you some general idea of what SMSFs are and why you should consider this model as your superannuation plan. The time is passing very fast and the retirement will come sooner than you expect. Do your best to prepare for this transition.