It seems Australians have been thinking more and more about the benefits of self managed super funds (SMSFs) as they express concerns about the transparency, liquidity and flexibility of their existing super fund.
Despite the control, involvement and flexibility an SMSF can provide, there are a few things people need to consider before deciding if an SMSF is right for them.
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?
Having your own super fund to manage may sound easy, however as you are the trustee 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. The primary motivations for establishing an SMSF is typically the desire for investment control and to reduce fees.
Explore other superannuation options
Depending upon your preference towards self-investment there are other superannuation platform options that are commonly considered.
- Wrap platforms – There are a range of platforms where you have the ability for the investor who wants a degree of hands-on investment selection and direct equity access without establishing a SMSF. For higher balances these usually result in lower cost depending of course on investment selection and the frequency of trading the investor wishes to do.
- Retail platforms – These platforms offer investment expertise through managed funds and a suite of investment options from a retail sector and do not usually allow access to invest into direct equities. These platforms tend to be cost effective for lower account balances.
- Industry funds – Whilst similar investments as offered in retail funds, Industry Funds are not-for-profit funds. Historically this resulted in lower fees on average compared to retail superannuation funds.
Find out more
Finding the right platform to complement your current and future retirement objectives can be difficult.
Speak to one of our qualified and experienced Morgans Mackay Advisers today to define your own retirement journey.
Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited (Morgans) AFSL 235410 ABN 49 010 669 726 as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.
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