I'm 45 with $170,000 in super. Should I get an SMSF? I've heard that they are better because you don't have to pay fees to one of the big institutions and you have more flexibility in terms of where your money is invested. But with the new super rules that keep being talked about in the news, what is best? Industry, Retail or SMSF? And what are my tax breaks now? Are there any anymore changes coming? Very confused...
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I absolutely agree that taking a proactive approach to managing your superannuation is highly beneficial but this does not necessarily mean a Self Managed Super Fund (SMSF) is required.
SMSF’s: Myth Busting
There are a number of misconceptions regarding SMSF’s and it is very important to truly understand the responsibilities involved and to have a clear rationale before making the decision to setup an SMSF.
Firstly, let’s address the title ‘Self Managed Super Fund’
What this actually means is that you have the responsibility- as an SMSF trustee- of running the fund and a responsibility to the members of the fund. You are responsible for the administration, compliance (including annual returns and audit requirements) and investment strategy of the fund. In practice, this means you would generally need to work with an accountant, an independent auditor and a financial adviser (as well as your time) to effectively administer the fund. Hardly Self Managed!
Now let’s address whether an SMSF is ‘better’ in terms of flexibility and fees.
Flexibility and Fees
Whilst there are certainly benefits to SMSFs for some individuals with specific circumstances such as complex estate planning requirements or particular business operators that may benefit from utilising an SMSF for specific rules regarding business real property, for most of the rest of us it is possible to outsource the above mentioned headaches to a professional Trustee for a small fee.
There are relatively high ‘fixed costs’ to setup and run an SMSF so a reasonable balance is required to justify the expense. Many suggest the minimum balance needs to be at least $200,000-$300,000. I would add to this that you need a specific reason for requiring an SMSF to justify the time and expense.
The core purpose (by law) of your superannuation savings is to provide retirement benefits to the fund members. I believe therefore that time and money is better invested focusing on your retirement and investment strategy rather than administration.
Industry, Retail or SMSF?
You opened your question referring to fees and flexibility. Whilst many industry funds claim low fees (beware the hidden costs!), they generally offer ‘one-size-fits-all’ investment options and do not provide the level of control or flexibility.
An SMSF can provide flexibility but this is only beneficial if you have a clear need for it (and use it).The additional access that an SMSF provides in terms of investment options is in regard to ‘real’ assets such as direct property and to a lesser extent art and collectibles.
Financial advisers are able to utilise superannuation services that provide access to literally thousands of wholesale investment options from which they can devise a portfolio focused on building your retirement wealth. These technically fall under the ‘Retail’ banner but I caution again to look for the separation of the administration functions from the investment options when it comes to retail solutions.
Ultimately, an adviser can work with you to assess the various options to help to find the right solution for you.
It is important to understand that the tax environment is the same regardless of whether your super is within an SMSF or an industry or retail fund. The way your money is administered, however, can have a real impact on the overall tax position.
Yes! The one constant is that you can expect is that changes will continue to be applied to the super environment (there are a number of announcements from the last budget that are still being debated in parliament). As well as legislative changes, the investment environment is constantly changing and your personal circumstances (including age) can impact on your superannuation strategy. For this reason, there is no ‘set and forget’ solution when it comes to your super.
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