Arguably, the main reason for establishing a self managed super fund (“SMSF”) is to introduce leverage into your superannuation arrangements. Just about every other investment that you might like to hold for retirement funding purposes can be achieved through a personal super plan.
A personal super plan (“PSP”) is less complicated and less expensive to administer, but still has a high level of flexibility so you can invest in direct shares, managed funds, Exchanged Traded Funds, investment-grade bonds and term deposits. A PSP will generally not permit you to hold exotic investments such as a vintage motor car that you (and sometimes only you) are convinced will increase in value. A PSP will also not let you have collectibles such as artwork however such purchases are often fraught unless you have just finished a spell as a senior curator at the National Art Gallery, we suggest you don’t hitch your retirement savings to a piece of artwork that you have been advised will one day be a classic!
However, a SMSF presents an excellent opportunity to diversify your superannuation portfolio into direct real estate and to introduce borrowings into your retirement funding strategy.
When deciding whether a SMSF may be right for you, it is important that you consider both the advantages and the responsibilities.
Advantages of an SMSF
Depending on your situation, the advantages of SMSFs can include:
- Control over your retirement savings
- As a trustee of your SMSF, you can make your own investment and strategic decisions for your retirement savings.
- Greater investment flexibility
- SMSFs provide greater flexibility in how you can invest your retirement savings. Members can choose to hold direct assets such as property, cash and listed shares.
- As a trustee of your SMSF, you can determine the investment choices and asset allocation of your SMSF.
- SMSFs can also acquire direct listed shares, business real property, and managed funds from super fund members.
- Lower costs of managing SMSFs
- For SMSFs with pooled assets of $200,000 or more, a number of the costs are scalable in that they do not increase with the size of the Fund. Examples are: audit fees (which are fixed); ASIC fees (also fixed); accounting fees which are linked to the complexity of the asset selection and not the amount of funds invested. Costs of your fund can drop below 1.0% pa. This is generally lower than many retail and industry funds.
- Tax concessions
- Earnings in your SMSF are taxed at an effective rate of 15.00%.
- Capital gains on investments held in your SMSF are taxed at an effective rate of 10.00% if held for longer than 12 months.
- Contribution tax payments in SMSFs are deferred until after the annual tax return is lodged unlike many industry and retail super funds where the 15% contribution tax is deducted when the contribution is paid into your super.
- Other strategies may also be available to help reduce the overall tax liability of your SMSF.
- Pooling resources for greater cost effectiveness
- Unlike other types of super, a SMSF enables up to four members (usually family members) to combine their assets to accumulate funds for retirement. This provides access to more cost-effective and efficient investment strategies.
Self managed superannuation funds (SMSFs) must be established for the sole purpose of providing benefits to fund members in retirement.
Or, if the member dies before retirement, a benefit to that member’s dependants.
Benefits can be in the form of lump sum payments, regular income payments. or a combination of both.
When can members access super benefits?
The rules regarding access to self managed superannuation funds are the same as all superannuation funds. These rules impose restrictions regarding when payments can be made to fund members.
Generally, member-benefits are classified into three categories which determine when they can be accessed by members. These categories are:
- Preserved benefits: can be accessed when a suitable condition of release is met on or after reaching the member’s preservation age;
- Restricted non-preserved benefits: can be accessed when a suitable condition of release is met, and
- Unrestricted non-preserved benefits: can be accessed at any time.
Types of income stream payments available
Superannuation benefits can be paid to fund members either as a lump sum payment or as an income stream, or a combination of the two.
If SMSF is something you are considering, view our blog post SETTING UP A SELF MANAGED SUPER FUND
Or get in contact today with our Locumsgroup financial advisers who can provide focused advice on what is the best way for you to handle your superannuation benefits and tailor a strategy that suits your requirements. CONTACT