Traditional superannuation funds often feel like distant, impersonal entities and it’s hard to think of the money within them as actually belonging to us. The fact is, the money in your super fund is yours, and with your employer adding 11% of your salary to it, it is most likely to be a significant amount. While they might not be for everyone, self-managed super funds (SMSFs) give you the means to take charge of your retirement savings.
According the recent data from the Australian Tax Office there are 610,287 SMSF funds with the total value of the assets in those funds at $878 billion in Australia in September 2023 and counting.
For a psychologist earning a comfortable income, a SMSF could be a good option for taking financial control of your super. Technology has made a SMSF easier to access, they are becoming less expensive to set up and run and in general Australians, especially women, are becoming more financially savvy.
What is a Self Managed Superannuation Fund?
SMSFs are basically a superannuation fund. They are subject to the same tax concessions as other types of super funds and there are the same rules about not being able to access your money until you retire. The big difference is with a self managed superannuation fund you make your own decisions about what to invest in.
The other big difference is unlike retail and industry based superannuation funds, the members of a SMSF can combine their assets to accumulate retirement funds.
In a SMSF there are 1 to 4 members (often a couple, or a family) where each member acts as a trustee of the fund. So all members must be the trustees, and all trustees must be the members.
According to the data the median size of a SMSF is $467,187 and financial planners usually recommend having a balance of $500,000 in super before setting up a SMSF.
Advantages
One of the primary reasons why self-managed superannuation funds have grown in popularity in recent years is the fact the members have greater control over the range of investments, the ongoing management fees and ultimately their tax payable.
When contemplating the establishment of your own self managed superannuation fund you need to weigh up the advantages and the added responsibilities. For many Australians, SMSFs offer four major advantages:
1. More control over your investments
2. Greater investment flexibility
3. Generally lower fees than industry and retail funds
4. Potentially better performance than industry and retail funds
Having a SMSF lets you take full advantage of tax and superannuation law changes as soon as they come into effect. They also provide families with a vehicle to pool their resources and grow their wealth together. You can effectively transfer wealth between generations and these estate planning benefits may not be available through conventional superannuation products.
However, keep in mind that if you have any products like insurance through your current super fund it will discontinue when you close it. In my case, I’m looking into whether I can continue my industry superfund with a small amount of money in it in order to continue my life insurance coverage.
More Control & Flexibility
As a trustee of your own SMSF, you can control where your retirement savings are invested. Compared to ‘off-the-shelf’ superannuation funds, you have a wider choice of investment options including listed shares, bonds, listed investment companies (LICs), exchange traded funds (ETFs) and direct property. You can also transfer personally owned listed shares and managed funds directly into your SMSF. In addition, a SMSF can own property used wholly and exclusively for business. You can devise your own investment strategy, actively manage the range of investments and adjust your portfolios as markets change.
The Commonwealth Government report, ‘A Statistical Summary of Self-Managed Superannuation Funds’ (based on ATO and APRA data) found that SMSF members generally paid lower fees over a 3 year period. The report also indicated that on average, SMSF investments performed better than all other super funds over the same period.
Requirements of a SMSFR
Your SMSF must have its own bank account and a trust deed. The deed is basically the rules of operation and sets out who can be a member, how they’re admitted as a member, what the fund can invest in and who can receive a death benefit.
Your own SMSF requires an annual audit plus you must lodge an annual tax return with the Australian Taxation Office (ATO). Establishing your own self managed superannuation fund is a very important financial decision, so before you decide to go down this pathway you need to know the costs and understand your legal obligations as they are subject to considerable compliance and regulation.
Tax Concessions
A SMSF offers the members a number of tax concessions including:
· They have a flexible structure so members can take advantage of estate planning opportunities to effectively transfer wealth from one generation to the next with minimum tax exposure. They also offer maximum asset protection at the same time
· Earnings in your SMSF are taxed at the concessional rate of 15%
· Capital Gains on investments held in your SMSF are taxed at an effective rate of 10% if they are held for longer than 12 months
· Unlike many industry and retail super funds where the 15% contributions tax is deducted when the contribution is paid into your superannuation fund, contribution tax payments in a SMSF are deferred until after lodgment of the annual tax return
· Maximum flexibility in establishing and managing pensions, including account based, transition to retirement and term allocated pensions
· Greater flexibility for accessing Centrelink benefits such as the Age Pension
Establishment & Administration of Your SMSF
The administration and compliance of your SMSF is very important.
The steps generally involved in setting up a SMSF include:
· Obtaining a Trust Deed
· Appointing Trustees with each Trustee to sign a ‘Consent to Act’ Form
· Each Trustee to sign the ATO Trustee Declaration
· Electing to become a Regulated Fund - Trustees must elect to be ‘regulated’ under SISA to receive concessional tax treatment within 60 days of establishing the SMSF.
· Obtaining a Tax File Number (TFN) and Australian Business Number (ABN)
· Establishing a separate Bank Account for the SMSF to ensure that money belonging to the SMSF is held separate from accounts of the members, trustees and related employers. This is a SISA requirement, but also helps SMSF trustees to preserve and protect their retirement income.
· Preparing and implementing an Investment Strategy for the SMSF
On going Administration – You are also required to
· Prepare Annual Financial Statements for your SMSF
· Prepare and lodge the annual Income Tax Return and Regulatory Returns
· Prepare Minutes of Meetings
· Maintain an Asset List for your SMSF
· Perform an Annual Audit of your SMSF
· Prepare and implement an investment strategy for the SMSF
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