Superannuation is often the second largest asset for Australians, therefore it’s important to make sure your super arrangement is right for you. The current uncertainty surrounding international share markets makes now a good time to review your superannuation structure. Many commercial super funds are experiencing fluctuating returns and people are becoming increasingly interested in the greater control offered by self‑managed super funds (“SMSFs”).
SMSFs give members greater control over their savings than industry or commercial super funds. This includes the freedom to keep commercial or residential property in self‑managed super funds.
SMSFs provide members with:
- freedom of choice;
- flexibility; and
- a wider range of investments.
One of the major benefits of SMSFs is the ability to gear individual investments. This means you are able to borrow money to purchase an investment such as real property or shares. Remember, the sole purpose of SMSFs must be to provide retirement benefits for the fund’s members or their dependants. This means that you cannot misuse the funds to buy a holiday house for your family.
SMSFs also give greater control over succession for assets held in the fund. Binding death benefit nominations can last forever with self-managed super funds. However, such nominations can only last up to 3 years under industry or commercial super arrangements.
SMSFs also give you the ability to tailor exactly how your assets are distributed when you pass on. For example, you could determine that all of your super will go to your partner, but if your partner does not survive you, the family farm will go to your daughter and the balance of your super will be shared equally among your sons.
This is significant as it allows you to cater for your personal situation; whereas commercial funds often place restrictions on who can receive your superannuation.
While managing your own super fund can be very rewarding, it is important that the fund is properly set up and documented each year. You can be fined for breaching certain super laws. In serious cases, your fund may be declared noncompliant and almost half your assets can be lost in penalty taxes. You may wish to engage professionals to assist you in managing the fund.
Is Self-Managed Super Right for You?
SMSFs may be right for you if you:
- believe you can outperform your current industry or commercial fund;
- have at least $250,000 in superannuation to make the annual costs worthwhile (remember you can have up to 4 members);
- have the time, effort and interest to run your SMSF;
- want the ability to properly tailor how your assets are distributed when you pass on; and
- want greater control, independence and flexibility over your superannuation.
To learn more about SMSFs, keep an eye out for our free upcoming superannuation seminar.
