Is an SMSF the right choice for your retirement savings?

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By Simon Tarrant
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Date posted:
29 June 2020, 3:30 PM

As investors continue to seek greater control over their retirement savings, we have seen a large increase in the registration of Self Managed Superfund’s (SMSF). However, the big question for investors should be is this the right investment vehicle for you?

SMSF Association chief executive, John Maroney has said that registrations of self-managed super funds (SMSFs) have been increasing, with “SMSF registrations for January and February 2020 increasing by 15.6% compared with the same period last year, and data up to 25 March indicating that March registrations were running 6% above those in March 2019.”

Before committing to an SMSF you need to ask yourself the following questions?

  • Is the fund strictly for benefits in retirement?
  • Do you have the time to manage your own fund?
  • Will the benefit be worth the cost?
  • How will switching to your own SMSF affect your current superannuation benefits?
  • How will the change impact your current personal insurances?

Having your own super fund to manage may sound easy. However, as you are the trustee of your own fund you are ultimately responsible for every decision you make.

You need to understand there are some things you simply cannot do within your SMSF. The regulator, the Australian Tax Office, will apply heavy penalties against trustees who break the law.

How much is enough?

This has been a hotly debated issue since the inception of SMSFs. Different people have different ideas as to exactly how much is needed to set up an SMSF. ASIC has recommended at least $500,000 for an SMSF.

It can be argued that people with less than this could easily manage their own SMSF, particularly if they are planning to make large contributions over time and/or have experience with investing.

The issue, of course, is cost. To remain cost effective it is generally accepted that the greater amount of funds pooled within the SMSF, the lower the cost average. Over the long term, as the SMSF account balance grows, the cost of running the fund becomes even more efficient.

In relation to costs, clearly size does matter. As shown in the below table, there is a significant difference in the ongoing costs for Bill and Ellie compared to Paul and Mary. Even where Paul and Mary incur additional costs due to the corporate trustee structure, their average costs are less than half Bill and Ellie's.

SMSF table

# Paul and Mary are using a Corporate Trustee structure, which means an additional $455 ASIC fee. Bill and Ellie are using an Individual Trustee structure, so the only cost is the SMSF Trust Deed. * The ongoing company fee is a reduced ASIC fee because Paul and Mary are using a shelf company as the corporate trustee, and not an existing company. A shelf company acts as the corporate trustee only and is not associated to any other entity activities. ^ Administration fees charged by Morgans Wealth+ SMSF Solutions service and includes annual audit fee. This is an indicative cost only as the actual fee will depend on the administration/accountant service used. ** Ongoing portfolio fee is an estimated average Morgans Wealth+ fee

What other options are there?

Investors looking for control over their superannuation but do not want the added responsibility of an SMSF may wish to consider a retail WRAP fund that allows the flexibility of selecting your own investments from a range of listed and unlisted options.

The wrap platform will also take care of all administrative requirements including reporting of super contributions, payment of tax, provide you with annual statements and so on.

Simon Tarrant, Private Client Adviser at Morgans Gosford, advises: “When considering which is the right superannuation vehicle for you, what is right for one individual will not always suit another. It is important to consider how each vehicle fits into your personal circumstances and will assist you in meeting your goals for retirement.”

Find out more

Simon is a Private Client Adviser at Morgans Gosford. Simon is passionate about creating quality financial strategies that are tailored and customised to an investor’s individual lifestyle, financial goals and risk profile.

If you would like to discuss which superannuation option is appropriate for you, please contact Simon on simon.tarrant@morgans.com.au or via (02) 4325 0884

General Advice warning: This article is made without consideration of any specific client’s investment objectives, financial situation or needs. It is recommended that any persons who wish to act upon this report consult with their investment adviser before doing so. Morgans does not accept any liability for the results of any actions taken or not taken on the basis of information in this report, or for any negligent misstatements, errors or omissions.

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