Benefits of self managed superannuation

There are a number of unique benefits in establishing a self-managed superannuation fund including control of investment strategy, speed and flexibility of investment, estate planning, management of retirement pension and superannuation tax incentives.

Control of investment strategy

The trustee(s) who are also usually the members of the SMSF have control of the investment strategy of the fund and are able to choose to invest in an wide range of investments available to Australian investors including investments not typically available to members of large superannuation funds such as investment properties, direct Australian and international shares and direct fixed interest.

Speed and flexibility of investment

The trustees have the flexibility and speed to make changes to the fund’s investments quickly and easily, based on sound financial advice and considering changes to market conditions.

Estate planning

A complying self managed superannuation fund has technically an unlimited life span. That means both the management of the assets and the payment of benefits can continue into the future to nominated beneficiaries beyond the death of an original trustee/member.

Choice of superannuation deposits

Subject to superannuation laws, the fund can accept the following types of deposits:

  • Personal contributions
  • Employer contributions
  • Spouse contributions
  • Government co-contribution
  • Directed termination payment*
  • Superannuation guarantee vouchers
  • Rollovers
  • In-specie contributions**

Management of retirement pension

Just as a complying fund provides the mechanism to grow and manage an asset portfolio for retirement, the same structure provides an ideal mechanism for the management of pension income derived from the fund.

Superannuation tax incentives

By definition, self managed superannuation provides a tax effective means of both accumulating assets for retirement as well as funding retirement.

Benefit 1: Control

An SMSF gives you total control of your Super by allowing you to choose where you invest your Super Benefit. Invest in Shares, Property, Term Deposits, Cash, CFDs and more! The Investment Choice is entirely yours (noting our list of Allowable Investments here)! Many clients who are disappointed with their Superfund’s performance or simply think that they can do a better job investing their Super Benefit themselves are choosing to establish and manage their own SMSF. A SMSF puts you in TOTAL CONTROL of your financial future, where you decide how your Super Benefit is invested not the so called professionals more concerned with their bottom line than yours.

Benefit 2: Lower Fees

SMSFs can be the most cost effective type of Superannuation Fund, particularly considering SUPERNATION’S low annual fees irrespective of your Super balance. This means that the percentage cost of running a SMSF actually falls the higher your Superannuation balance grows. This is unique in comparison to other Superannuation Funds whose fees increase as your Superannuation balance grows. For example, a Superannuation Fund charging 1% in fees will double their fees from $2,000 to $4,000 per annum when your Super Benefit doubles from $200,000 to $400,000. SUPERNATION’s Fee remains fixed.

Benefit 3: Add thousands to your Final Super Payout

Consider that an average retail Superfund can charge up to 2% pa in fees and that you will pay around $500,000 in fees over your working life. With SUPERNATION’s fixed annual fee of $699 (even indexed for inflation) you can expect to pay closer to $60,000 in fees over your working life. That’s a fee saving and extra Super in Retirement of over $400,000! The earlier you start the more you save. It really is amazing! For more on how fee savings can affect your final super payout.

Benefit 4: Ownership

Imagine waking up nearing retirement and being told you cannot access your Super Benefit to fund your retirement. It can happen. In fact a recent analysis indicated that sometime in the near future major Retail and Industry Superfunds will experience payout difficulties due to insufficient liquidity as baby boomers begin to retire and worker contributions are insufficient to meet retiree withdrawals. This will mean “frozen Superfunds” which occurred in the recent Global Financial Crisis will become more normal as time goes on. The reason that this can occur is that you are not the owner of the assets in a retail and industry Fund. You simply have an entitlement in the Fund assets as a Member. Think about that. You don’t actually legally own the assets in the Superfund and are at the mercy of the Fund Trustee to ensure the Fund is managed appropriately to pay your Super Benefit. It may be that this risk is exaggerated but it is a risk nonetheless you can do without. A SMSF eliminates this risk entirely. Why? Because in a SMSF you are the owner of all SMSF assets and you decide when you can access your own Super Benefit. A SMSF is the only Fund type where you own the assets that make up your Super Benefit.

Benefit 5: Consolidate Multiple Member Accounts

A SMSF allows you to consolidate your family or friend’s Super Benefit under one SMSF. A SMSF can have up to 4 Members and each of these Members can contribute to the one SMSF. This means that instead of each Member paying separate fees in their Fund (or in multiple Funds) you can Rollover and consolidate 4 persons Super Benefits, which can then be managed under the one SMSF. Importantly, whether your SMSF has 1,2,3 or 4 Members our annual fee does not change!

Benefit 6: Accumulation and Pension Fund in one

With Retail and Industry Funds your benefit is typically invested separately in a Pension or Accumulation Account. This means that when you wish to drawdown your Super Benefit as a Pension your Super Benefit will need to be transferred to a separate Pension Account and any additional contributions you make will be added to a completely separate Accumulation Account. Each Account is managed separately with separate investments and a separate fee structure. Usually the more Funds you have the more fees you pay! A SMSF is a Pension and Accumulation Fund in one. You can commence a Pension and continue contributing to the same SMSF. There is no need to split your Super Benefit into multiple Funds. SUPERNATION can track each account as part of the annual compliance process. Importantly even if you have a Pension and Accumulation Account Balance our annual fee does not change!

Benefit 7: Taxation Benefits

When you commence a Simple Account Based Pension or Transition to Retirement Pension, the SMSF tax rate falls to NIL on earnings and capital gains. This means that you can generate unlimited income and capital gains and will pay no tax on them. This also means that your SMSF is entitled to receive any franking credits on Australian Share Dividends in cash from the ATO. Franking Credits simply represent tax paid by Australian companies on dividends your SMSF is receiving. Given that the company has paid 30% tax and your SMSF tax rate in pension mode is Nil, the entire 30% tax paid is refundable to your SMSF. Example: For every $10,000 received in fully franked dividend income, your SMSF receives $4,285 as a cash refund from the ATO each and every year the dividends are paid, after you commence a Pension! This is not the same in Retail and Industry Superunds that can decide how to allocate the tax refund or retain it if they choose. This is because the refund belongs to the Superfund and the Trustee of the Fund has discretion on how the tax refund will be applied.

Benefit 8: Consolidate Investments

Members of a SMSF traditionally make contributions in cash. However it is possible for Members to make contributions of assets into a SMSF instead of cash (called in specie contributions). Importantly only certain assets listed in the super regulations can be transferred in specie by a Member to a SMSF, such as Shares, Managed Funds and Commercial Property. If not specifically listed in the super regulations, it is illegal to transfer assets owned by a Member into the SMSF as a contribution. Residential Property is specifically excluded and cannot be transferred from a Member to a SMSF. Notwithstanding this, in specie transfers allow you to consolidate your Family Assets under the one SMSF tax advantaged umbrella. We note that taxation and capital gains tax issues should be considered.

Benefit 9: Succession Planning

A SMSF allows you to conveniently and legally pass a Members Super Benefit to their beneficiaries in the event of the Members death. This can keep your SMSF assets under the same SMSF tax advantaged umbrella even after a Members Death.