A self-managed superannuation fund (SMSF) is a tax structure used as a way for saving and providing for members’ retirement benefits.
With an SMSF, members are charged with the responsibility of complying with super and tax laws plus making investment decisions as trustees. These responsibilities can be overseen and advised on by a financial adviser, accountant and or an administrator where a fee is paid for the services each year.
The usual alternative is a retail/ industry fund or a managed superannuation fund. A managed fund makes decisions of how to invest funds for all the members of the fund, which can range from thousands to millions of members.
A percentage fee is paid to the trustee or fund for this service.
In all structures, a fee is payable depending on the level of complexity and the tasks involved with running the fund.
In 2013 Rice Warner, an actuarial firm, prepared a report for ASIC regarding SMSFs and how they compared with retail and industry funds. This report was recently updated, with some notable results.
It observed the following regarding SMSF accounts (without direct property):
For SMSFs with $500,000 or more:
- Accumulation accounts had lower fees than retail
- For pension accounts, only SMSFs with the highest level of complexity and administration were more expensive than the cheapest retail funds
- Since 2013, fees on SMSFs have become more competitive with retail and industry funds and on the lower end of complexity, even cheaper than retail and industry funds.
For SMSFs between $200,000 and $500,000:
- Low administration SMSFs are cheaper on average than retail and industry funds
- Medium-level administration SMSFs are cheaper on average than retail and industry funds
- Higher administration funds are on par with retail and industry funds, except at the high $200,000 administrative range.
For SMSFs with $200,000 or lower:
- In the $200,000 range, low to medium administration funds are on par with retail and industry funds
- At $100,000 or lower, retail and industry funds have lower fees on average than SMSFs.
These observations support the view that those who have a combined balance of $200,000 or more may get more value from an SMSF than a retail or industry alternative.
There are other benefits to having your own fund include:
- More investment flexibility – particularly as it relates investments such as direct shares, physical property and unlisted investments
- Tax planning – control over assets and when to acquire and dispose
- Estate planning – death benefit nominations don’t lapse, and you can control the type of death benefit you receive
- Add additional members – you can have up to five other members in the fund, enabling the pooling of assets.
The increased flexibility is of significant benefit to those who want more control over their retirement savings. Where there are gaps in investment knowledge or keeping up with rule changes, an accountant or financial adviser can be of assistance.