The end goal of most Australians may be retirement, but that also means giving up your regular income. Many measures have been implemented by the Australian Government to promote retirement planning; one of the most significant has been the introduction of compulsory contributions to retirement savings received from Superannuation over the course of an individual’s working career while maintaining a low income tax environment.    

People often save for retirement through Self-Managed Superannuation Funds (SMSFs), which allow them to directly control the investments they make with their savings. There are, however, a lot of rules and regulations that govern SMSFs, and as a result, SMSFs place a lot of responsibility on their owners. SMSFs, then, might not make sense for everyone.  

Presented below is a brief summary of what a SMSF can offer you in terms of advantages and disadvantages.

Advantages

A SMSF offers the following benefits:

Investment choice

Comparatively to other types of superannuation funds, SMSFs offer more investment options. SMSFs can invest in almost anything so long as it meets the sole purpose test and complies with relevant regulations. Direct property investment is one such investment option.

Additionally, SMSFs can borrow to purchase assets, but this has become increasingly difficult as many banks have removed their SMSF lending products.

Small businesses or self-employed people are interested in SMSFs because commercial properties can be purchased by the SMSF. If the rental rate is at the market rate, they can then rent the property to their business.

Investing in certain unlisted entities and owning artwork and other collectables are all permitted within an SMSF. For the SMSF to remain compliant with the law, there are stringent criteria that have to be met regarding these investments.

Flexibility & control

Trustees are also members of the fund, so they have the flexibility to tailor its rules to suit their specific needs. Another superannuation fund does not offer this flexibility.      

You can make quick adjustments to your portfolio if the market changes or you wish to take advantage of sudden investment opportunities when you manage your own super investments.

Effective Tax Management

With a SMSF, you can easily implement tax strategies that are right for you and your financial situation.

Accountability

You will be more aware of where your super monies are invested and how they are performing if you are both trustee and member. As a result, industry and retail super funds would not publish investment performance until months later due to their size.    

Good SMSF administrators use software that enables you to track the value of your fund regularly and give you access to up-to-date information at any time so you can accurately track the outcome of your decisions and streamline the management of your fund.  

Managing your fund’s costs

Due to the high setup and compliance fees, SMSFs were traditionally used only by the wealthy. The advancements in technology and competition between service providers have made SMSFs an increasingly cost-effective option for all.

Costs associated with running your SMSF property will depend on the level of professional support you engage.

Operating a SMSF has a large number of fixed costs. The costs of a fund decrease proportionally as its value grows. In contrast, in Industry or Retail Super Funds, costs are usually based on your overall balance.