Is a Self Managed Super Fund right for me?

10 Apr 2014

By Belinda Von Knoll

There's no doubt that Self Managed Super Funds (SMSF) have received a lot of attention in the press over the past few years.

This attention has seen an increasing number of people blazing a trail into the SMSF world, all too often with limited knowledge and understanding as to what is required to manage their own superannuation fund.

While being in charge of your own SMSF may sound exciting and prestigious, the reality can often turn into a major headache if you're not prepared for the compliance obligations and the investment decisions that go with it. Certainly for many people a SMSF is a rewarding way to take responsibility of their superannuation and watch their savings grow.

So how do you decide if a SMSF is right for you? 

Taking active control

A SMSF can be the perfect vehicle if you have the time, skills and dedication to become fully involved in the superannuation process. Perhaps the main benefit of a SMSF is control. In a SMSF you are not only a member of the Fund but you are also the Trustee – which means you have control of your superannuation. Although you are able to decide what happens in your Fund, it is important to acknowledge you are also the person responsible for ensuring the Fund follows the rules and regulations which govern superannuation. Trustees will frequently seek advice from various experts to make sure they get it right, but ultimately you need to have the knowledge to understand what you're doing on an ongoing basis.

Benefits of consolidation

A SMSF provides you with the ability to consolidate accounts of up to four people into the one fund. Overall this can reduce administration costs of having a traditional fund manager looking after multiple accounts.

If you're a small business owner it can also provide you with the ability to access cash via selling your business property to your SMSF. This in turn provides a way for you to build your retirement benefit whilst accessing cash flow to build your business.

Building your knowledge

It helps to have an active interest in investment markets if you're going to undertake management of your own SMSF. This takes time, skill and above all an ongoing interest in investing. Remember you will be responsible for selecting which investments are going to help you achieve your financial goals over time. Having the skills in investing and seeking expert advice in this area are critical for a SMSF Trustee as there are limited recourses available under the law for you to seek compensation for investments which fail.

The red flag

Of course there's nothing better than watching your money grow and knowing that you've been directly involved in making it happen. However, if superannuation is not something you are sufficiently interested in or skilled to handle then a retail or industry superannuation fund, where you are a member of the fund and not the Trustee, may be the best option for you. In addition within a retail or industry fund if you are unhappy with the Trustee's decisions you have recourse available to you under dispute resolution processes which are not available under a SMSF.

Know your role and responsibilities

It's easy to overlook your legal obligations when you're thinking about setting up your SMSF. It's important that you are aware of your duties and responsibilities which include:

  • Ensuring your Fund's sole purpose is to pay retirement benefits to members or their beneficiaries
  • Accepting contributions and paying benefits according to superannuation and tax law
  • Making and documenting investment decisions and complying with restrictions
  • Making sure an independent approved auditor is appointed for each income year
  • Completing administrative tasks such as record keeping and lodging annual returns
  • Reviewing and updating your Fund's trust deed and investment strategy on a regular basis.

Is it really cheaper?

Finally, make sure you consider all the costs involved in setting up your SMSF and the impact ongoing costs are likely to have on the value of your Fund over time. While there are certainly savings to be made when you combine the accounts of different Fund members and manage the Fund yourself, the cost of setting up and running your Fund can vary considerably.

Do your homework

So if you are one of the growing number of Australians who have seen superannuation become their second largest asset outside of the family home and know you have the time and skills required, then a SMSF provides an alternative option for you to explore.

So what are you waiting for? Is it time to take your financial destiny in a new direction? Make the call to your financial adviser and start the conversation about whether a SMSF is right for you.

To learn more about Belinda, view her online profile.

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