Self-managed super funds (SMSFs) are becoming increasingly popular in Australia due to the greater degree of control and flexibility they provide. More than 1 million Australians are now SMSF members.
Having your own self-managed super fund allows you to have full control over the assets you invest in for your retirement. You can develop your own investment strategy, rather than following the strategy of a superannuation fund manager.
Below are the top 5 reasons to have your own SMSF.
1. Cost savings
High net worth individuals can save on administration and investment management fees by having their own SMSF, rather than having their super in a retail or industry fund. For example, if you have a super balance of $180,000 in the Hostplus Personal Super Fund (an industry fund), you will currently pay annual fees of $2,058.
However, in their 2020 Cost of Operating SMSFs 2020 report, actuarial firm Rice Warner highlighted that the annual costs of SMSFs with balances of $250,000 can be cheaper than retail or industry funds, especially if trustees perform some of the administration tasks themselves.
In addition, Rice Warner’s research found that the annual costs of SMSFs with balances of $200,000 or more are competitive with retail or industry funds, even if trustees don’t perform any administration tasks.
2. The ability to invest in a wider range of asset classes
SMSFs are able to invest in a wider range of asset classes than both retail and industry funds, including:
- Shares (listed and unlisted)
- managing funds (listed and unlisted)
- Foreign investment (shares)
- Precious metals
- Art and collectibles
- Property (including borrowing to buy an investment property or commercial property. You (or any other members of your fund) can lease any purchased commercial premises at market rates if you want to, or lease them to a third party. If you are a small business owner, using your SMSF to buy your business premises can give you greater protection if you get into any financial trouble. Super assets are protected from creditors and bankruptcy.
Your investment options in retail and industry funds on the other hand are more restricted.
The wider range of potential investments available in an SMSF can enable you to diversify, lower your risk and increase your investment returns.
3. Better market downturn protection
Because SMSFs give you full control over your investments, you can more easily move to lower-risk investments during times of market downturns and uncertainty. For example, the investment returns of many retail and industry super funds were hard hit by the impact of COVID-19 on the economy. SMSFs give you the control to select from a wider variety of investment options, potentially reducing the impact of market downturns.
4. Access to wholesale investments
SMSFs that meet certain eligibility requirements (for example, net assets of at least $2.5 million) can be classed as ‘wholesale’ clients. Wholesale clients have access to investments that are not available to retail super funds, e.g., property trusts and bonds.
One way to meet the ‘wholesale’ investor eligibility requirements is to pool the balances of SMSF members to meet the $2.5 million threshold if you do not individually satisfy this requirement.
5. Tax benefits
Like all super funds in Australia, SMSF earnings are taxed at the concessional rate of just 15%. This is lower than even the lowest marginal tax rate. A complying SMSF would end up paying tax from 0 to 15%
This means that if you use your SMSF to purchase an investment property or commercial premises for example, you will pay less tax on the rental income you earn.
How we can help
Our experienced team of SMSF advisors at Wilson Pateras in Richmond can help you to set up and manage your SMSF. We will ensure you comply with Australia’s superannuation legislation and help you put strategies in place to achieve your financial goals in retirement.
Contact us today for a consultation to find out how we can help you!