An SMSF pension, a retirement income from a self managed super fund, is a way of saving for retirement. Superannuation is the Australian equivalent of what is called retirement plans in the US and pension schemes in Britain.
There are several types of superannuation funds in Australia. On the one hand there are the types of funds that are managed and administered by a third party. This could by an industry super fund, an employer stand-alone fund or what is called a “retail fund”.
In contrast, a self managed super fund (SMSF) allows the fund’s trustee to also be its main beneficiary. This means when you set up your own SMSF you can invest your superannuation according to your own preferences.
However, there are a number of things to consider when deciding whether an SMSF pension is the right type of superannuation for you.
Time
When you set-up an SMSF you will not only have to manage your own investments, you also need to administer the fund and comply with the rules and regulations set out by the ATO. This is extremely time consuming, even if you work with a superannuation accountant and independent auditor.
Skills and Knowledge
Setting up your SMSF, managing investments, and administering your fund takes considerable skills and knowledge. You will need to know about the investment side of things, and set out and investment strategy plan, but you will also require the skills and knowledge to ensure ongoing compliance with laws and regulations. In addition, your fund required accounting knowledge because you need to prepare annual statements.
Assets
The ATO advises that considerable superannuation savings are required to establish a competitive fund. Your assets build the basis of your investment strategy to grow your SMSF. In addition, may need to consult with professionals and advisers, which would add to the cost of managing your fund.
Understanding the Risks
Of course all financial decisions carry risk. That’s why it’s important to think carefully about your investment options and to balance the level of risk against the level of financial return. In addition to the financial decision, you will need to ensure that all your superannuation investments are legal and the ongoing administration of your fund is compliant with all applicable rules and regulations. If there is any illegal activity or your SMSF is deemed as non-compliant you will face additional risks in the form of severe penalties issued by the ATO.
When you decide whether an SMSF pension is the right thing for you, it is advisable to speak with an expert before you make the decision. You can speak to a financial planner, accountant or specialist superannuation accountant.