Is a SMSF the right fund for you?
For many people Self Managed Superannuation Funds (SMSFs) are a great option for building retirement savings, however, they may not be the ideal fund for all. The following will showcase some important differences between SMSFs and other types of funds. Differences include management, costs, investment flexibility, insurance, and more. This information will help you make a more informed decision about your super.
While public offer funds are managed by professional licensed trustees, SMSFs management is the responsibility of the members, with every SMSF member having to be a trustee of the fund (or, if the trustee is a company, a director of that company).
This is a positive for anyone who wants full control over how their super is invested and managed, the control comes with the responsibility of complying with all superannuation laws and regulations, this means penalties can apply for non-compliance.
There can be a significant difference in costs between the two types of funds.
Fees that are charged by public offer funds can vary, however, generally speaking, are charged as a percentage of the member’s account balance, i.e. the higher your balance the higher the fees. When it comes to SMSF, the fees are more straight forward, often being on a fixed basis. Also, on top of establishment costs and an annual supervisory levy payable to the ATO, SMSFs must hire an independent auditor annually.
Largely for members with modest balances an SMSF will be more expensive than a public offer fund, however, this should be weighed up against the benefits of an SMSF. Anyone that is considering an SMSF should carefully assess the running costs involved and make an informed decision whether it is the right type of fund for them.
A benefit of an SMSF is that the member-trustees have complete control over their investments, which means they have the choice of investing in various assets that would not be possible with a public offer fund, as long as it complies with all superannuation laws.
However, having this flexibility means that SMSF trustees must create and update regularly an “investment strategy” which specifically addresses things such as risk, liquidity, and diversification.
It is entirely possible to hold various types of insurance through your superannuation fund, including death, temporary incapacity, etc.
For most Australians, using superannuation benefits to pay insurance premiums makes insurance more accessible and convenient. While you can purchase insurance within an SMSF, large funds usually offer cheaper premiums. If you are looking to hold insurance in your fund, it is suggested to seek advice regarding the tax consequences.
A dispute resolution is vastly different for SMSF compared to a public offer fund.
Members of a public offer fund can complain to the Australian Financial Complaints Authority (AFCA), a free dispute resolution service that has the power to make binding decisions to resolve member matters.
SMSF trustees may make a complaint to AFCA regarding financial services problems encountered from third parties, for example, an insurance company or a bank. However, the AFCA cannot hear a complaint about the conduct of a trustee and their members cannot complain to AFCA about decisions that other trustees have made. In these cases, the parties would need to go through the legal system and must be privately funded.
Superannuation is a ‘financial product’ as defined in the Corporations Act 2001. Personal advice in relation to the establishment of an SMSF can be provided by an accountant or adviser provided that they are appropriately licensed.
For assistance handling your superannuation please contact your Mazars advisor or alternatively.
Brisbane – Clive Todd
Melbourne – Michael Jones
Sydney – Jeremy Mortlock
+61 7 3218 3900
+61 3 9252 0800
+61 2 9922 1166
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.