Sep 2019 4 Minutes
Is your superannuation fund working for you?
With the findings of the recent royal commission into Financial Services, are you confident that your superannuation fund is working for you to its fullest potential?
It is important to regularly take some time out to review your current situation and consider what options are available for your superannuation and personal insurances. Proper management of this significant investment is important and how it is being managed will have a significant impact on your retirement. Your super is your future.
Many members are leaving their large institutional and industry superannuation funds to start their own self-managed superannuation fund (SMSF). These members long for more choice, flexibility and control over how their superannuation is being invested.
Although there are many benefits in managing your own SMSF, there are also some responsibilities you need to be aware of.
Advantages of an SMSF
- Asset protection - A member’s fund assets tend to be protected from creditors in the event of legal action or bankruptcy.
- Choice in the investment - The Trustees have absolute discretion with respect to the choice and mode of investment.
- Family fund - Up to four members of your family can participate in the superannuation fund and reap the rewards.
- Flexible estate planning - A Binding Death Benefit nomination form, known as the “will” of the SMSF, ensures that the superfund benefits are paid as directed by each member.
- Increased control - The fund assets are controlled by the Trustees who are also the members. The Trustees have responsibility for all decisions.
- Open to change - Trustees can make real time decisions allowing for fast responses to changing market conditions, legislation or personal circumstances.
- Secure income in retirement - SMSFs offer the most flexible options for members when taking their benefits in retirement, whether withdrawn as pension or lump sum.
- SMSF borrowing - Under particular circumstances, SMSFs are able to utilise debt facilities when financing the purchase of certain investments. This increases accessibility to high cost assets such as property.
- Structure that is cost effective - The SMSF fee structure may deliver substantial savings when compared with other retail superannuation funds.
- Taxation - An SMSF enjoys the lowest rate of tax of any entity structure in Australia. The fund pays a maximum rate of tax of 15% which may be reduced by offsetting other tax credits. Once members enter retirement phase, tax on earnings can be reduced to zero.
Disadvantages of an SMSF
- Legislation requirements are complex - SMSFs are governed by complex legislation which has been subject to change. Trustees are responsible to maintain an understanding of these laws to ensure compliance.
- Penalties for non-compliance - The cost to the fund of non-compliance could potentially be a 45% tax penalty on the fund and prosecution of the trustee(s).
- Start up and operational costs - The upfront and operating costs of an SMSF may be prohibitive for members with small balances.
- Sole purpose requirements - An SMSF must be used for the benefit of members or their beneficiaries on retirement, disablement or death. It can’t be used to provide benefits outside of these parameters, such as loans to members.
- Time consuming - A larger time commitment may be required due to the increased responsibility in managing an SMSF and its investments. This can be reduced by engaging specialist administration services.
If you are willing to take on the responsibilities of being a SMSF trustee and are willing to learn and understand its intricacies, you will start to understand why the SMSF is such a popular and effective wealth creation and retirement vehicle.
Assistance is always at hand with the appropriate advisors to provide you with peace of mind for asset protection, effective wealth transfer, administration of the fund, tax and also the potential for better returns.
For more information on self-managed superannuation funds or wealth management, please contact Iggy Moro. We have many qualified professionals who can assist you along your journey.
Iggy Moro | Authorised Representative | TWD Licensee Services Pty Ltd ABN 57 627 192 321 | AFSL 475964
GENERAL DISCLAIMER: This article contains general advice only. It does not take into account the objectives, financial situation, or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.