There is a lot of buzz surrounding self-managed superfunds, but before taking the plunge there are some key questions you need to ask yourself.
To DIY or stay with a managed superannuation fund? It’s the question many business owners are asking themselves as they think about their financial future beyond work.
Running an SMSF comes with advantages – chief is the ability to control what happens to your super. But there are also financial and legal obligations to comply with, among other considerations.
If you’re thinking about setting up an SMSF, it’s important to research the pros and cons. Here are three factors to consider:
Why are you looking at an SMSF?
Mark Needham, the marketing director of ESUPERFUND, says there are several good reasons why people are keen to set up an SMSF.
“One of the key drivers behind the increasing number of SMSFs being set up is a desire for personal control and greater investment choice,” Needham says.
“The ability to have up to four members in a single SMSF makes it an attractive option for many people.
“You can set up an SMSF for yourself and add up to three other people and consolidate the super balance from each member into one SMSF.”
“The other difference between retail or industry funds and SMSFs is that an SMSF is a pension and accumulation fund rolled into one,” Needham explains.
“You can commence a pension and continue contributing to the same SMSF,” he says. “There is no need to split your super benefit into multiple funds.”
Do you have the right amount to invest?
“It’s possible to start with any monetary amount”, Needham says, “but you need to ensure you have enough to make it viable.
“The balance of your SMSF needs to cover the costs involved in running it, the investments you intend to make and any associated costs,” he says.
SMSFs incur fees in the process of being set up, and also some ongoing costs. These include an annual SMSF supervisory levy collected by the ATO, annual audit fee and an annual tax return fee.
There are insurance fees, investment costs and costs associated with winding it up. You need to have sufficient money to take advantage of any potential cost savings. If you can navigate the range of fees, an SMSF can save money compared to a traditional fund.
“Traditional super funds charge fees as a percentage of your investment, taking around 1% to 2% of your hard-earned cash every year,” Needham says. “You end up paying more in fees as your balance grows.
“But with an SMSF, you generally pay the same flat fee year after year. When you have 20 or 30 years of saving ahead, that can make a big difference.”
Can you meet all your obligations?
“The trustees of an SMSF control it and make all the investment decisions,” says Needham.
“It is important to understand that the SMSF trustees do not own the fund assets, but are simply responsible for administering the SMSF.”
This includes maintaining records, establishing the SMSF investment strategy, ensuring that you’re complying with all regulations under super laws, and lodging tax and regulatory returns.
You should consider the time and skill you will need to manage your own fund. Keeping on top of everything, while also meeting the needs of your business, can be a challenge.
“If you can get some help from the SMSF experts, you may find getting on top of these obligations is not that difficult,” says Needham.
For more information on establishing a SMSF, visit ESUPERFUND.
Written by: Jacob Robinson