Is an SMSF right for me?
Is an SMSF right for me?

Self Managed Superannuation Funds (SMSF), or DIY funds as they are also known, have for some time now been the growth sector of the superannuation market. With more than 595,000 funds and over $712 billion in assets confirms the continuing popularity of self managed super. So, what is it that makes SMSFs so attractive? Below are some good reasons to consider an SMSF.

1. Take care of the whole family

SMSFs enables up to four people in a family to be members of the same fund.

Having family members and their super assets in the one flexible superannuation fund, that is purpose built for you and your family, may make it much easier when considering the needs of each person as well as estate planning across the family.

2. Control and flexibility

Almost every aspect of a SMSF offers the opportunity for as much control and flexibility as you want or need, provided you stay within the superannuation rules. This control begins with the fund’s all-important Trust Deed that can be drafted to your exact specifications.

As trustee of your own fund, you have flexibility in relation to your choice of fund investments, tax strategies and estate planning.

While you are in control you do not have to make all the decisions or do all the work alone. You may choose to use the services of specialist companies that do administration and/ or accounting specifically for SMSFs. This can leave you free to concentrate on tailoring your own investment strategy in conjunction with advice from your Adviser.

3. Cost effective

Cost savings may or may not be a key driver of your decision to start an SMSF, but it is possible to achieve cost savings compared to public offer superannuation funds. The extent of cost savings depends on the type of investments, how you operate the fund and the amount of savings held in the fund.

Due to the set-up costs and annual fixed costs associated with SMSFs, it is widely considered uneconomic to commence a DIY fund with assets of less than $200,000, unless of course you plan to make significant contributions to the fund soon after. The cost effectiveness of self managed funds will usually improve as the fund assets increase.

4. Broad investment choice

SMSFs offer almost limitless investment choice. Compare that with your ordinary superannuation fund where investment choice is often limited to capital stable, balanced and growth options.

Compared to your ordinary superannuation fund, an SMSF allows you to invest in direct equities and direct property, a variety of overseas assets and alternative assets.

Superannuation law does not prescribe the type of assets that a superannuation fund can and can’t invest in. Rather, it sets an investment framework that trustees must adhere to in relation to the investment of fund assets. Importantly, however, all investments need to be made in accordance with the fund’s documented investment strategy and must meet the sole purpose test i.e. to be providing benefits for your retirement, death or disability.

5. Taxation efficiency

It is the taxation efficiency of SMSFs that attracts many people, along with the ability to spread those benefits across family members within the fund. Some of the taxation benefits include:

  •  The ability to use imputation credits from shares paying fully franked dividends to substantially reduce the tax liability of the fund. Importantly, excess imputation credits can be refunded to the fund - a key point for funds with pension members; and
  • The ability to structure very tax-effective estate planning strategies that can include the payment of pensions upon death to beneficiaries including young children.

6. Estate planning opportunities

For specifically tailored estate planning strategies, it is unlikely that you will find a public offer or corporate superannuation fund that matches the flexibility that is possible within an SMSF.

Estate planning is a key component of family needs and SMSFs allow these needs to be specifically addressed. But careful planning and specialist advice is important to ensure that plans are implemented correctly and do not lead to disaster.

7. You may find you enjoy the control.

It is apparent that more and more people actually enjoy being in control as a trustee of their own SMSF. Whether you are still working and accumulating super for retirement or you have retired, you have the option of getting as involved as you would like.

Some people enjoy getting involved with the day to day administration of the fund and certainly, for some, it can provide an enjoyable extra ‘hobby’ during their retirement years. The beauty is, that the choice is yours.
 

To find out if a self managed superannuation fund is the right option for you, contact your Patersons Wealth Adviser today.