Why should you set up a self managed super fund (SMSF) instead of going with a retail or industry superannuation fund?
Well, there are three main benefits to an SMSF: cost, freedom and control.
Benefit 1 – Cost
The costs for running your own superannuation fund tend to be mostly fixed and is not dependent on the total amount of assets you have. Other superannuation funds usually charge a percentage of assets as their fees, so the higher your account balance the more you pay.
Therefore when your superannuation funds/assets exceed a certain amount, having an SMSF would provide greater cost benefits. And if you have other members in your superfund, you can pool your funds together and share the fixed costs. A higher balance in your fund will also allow you to better diversify your investments and provide more leverage in borrowing for investments.
For example, if you have $300,000 in an SMSF and the cost to run it per year is $3,000, the fixed cost is 1% of your fund balance. However if you have another member (ie. your partner) in the fund who also has $300,000 (a total of $600,000 in the fund) in their superannuation, the fixed cost is 0.5% of the total fund balance.
Benefit 2 – Freedom
An SMSF gives you the freedom and flexibility when it comes to a range of important decisions such as how benefits can be paid to members when they retire or how death benefits are paid in the event of a member’s death.
You will also have the option to have your fund pay out in assets instead of cash.
Benefit 3 – Control
Just like its name, an SMSF is self managed therefore it gives you control over the decisions made in the superfund. You have the power to choose and develop an investment strategy that is tailored to your needs and have a direct say in all investment decisions (unlike retail or industry superfunds).
You will have access to a wider choice of investment options such as listed shares, real estate, corporate bonds and managed investments. You will also have the ability to buy or sell individual investments whereas other superannuation funds do not offer this service.
There is also the option for you to borrow within your SMSF to give you leverage for certain investments. As mentioned earlier, a bigger fund balance will allow you to better diversify your investments and give you access to certain investments that require a high balance such as commercial property.
An SMSF will also allow you to plan and structure effectively for certain tax events that is not available in a public offer fund.
There are a range of benefits that an SMSF can offer. However it is not suitable for everyone – and if you are not familiar with investment strategies and superannuation tax laws, it is highly recommended that you seek professional advice from a financial planner before setting up your own SMSF.