Self managed super
Most Australians choose to keep their money in professionally-managed super funds but there are some who prefer the hands-on control that comes with looking after their own retirement savings. The decision to set up a self-managed superannuation fund is not one to be taken lightly – they’re not for everyone and you need to have the time and knowledge to do it properly.
Did you know? SMSFs are now the largest sector (by $ value) of the super industry.
What is an SMSF?
A self-managed superannuation fund (SMSF) is sometimes known as DIY super. As the name suggests, you are responsible for managing your own superannuation. However, unlike normal DIY activities such as home repairs and quick fixes, DIY super requires you to have a solid understanding of how the super and tax laws work as well as all the rules that relate to being a trustee.
If you choose to have an SMSF, you become the trustee of your fund rather than paying fees to a professional, regulated fund to perform this duty for you. As a trustee you make all the investment decisions and are responsible for complying with the law and acting in the best interests of the members of your SMSF, including yourself. It’s like having your own private superannuation fund. So, as you can see, having a firm grasp of the requirements of the super system is an extremely important part in ensuring your retirement savings are managed correctly.
An SMSF can have between one and four members and each member becomes a trustee of the fund. Anyone can set up an SMSF but not everyone can do it right. SMSFs are run under strict rules by the Australian Taxation Office (ATO).
Did you know? SMSFs have no Government supported protection against fraud but professionally-managed funds, which are regulated by the Australian Prudential Regulation Authority (APRA), do.
Why set up an SMSF?
Most people choose to set up an SMSF because they like the sense of freedom and the opportunity to control their own affairs that the SMSF environment provides. These people usually have the financial skills and investment knowledge plus the available time required to effectively manage a superannuation fund. You can hire someone to run the administration side of the fund for you, but you cannot pass on your responsibility as a trustee.
Did you know? Even if you get professional advice, it is you as a member of the SMSF, who is legally responsible for all decisions made.
Starting or joining an SMSF
If you’re thinking about starting an SMSF or joining one already established by someone in your family, first consider the below:
- The ATO recommends you have at least $200,000 in your super account before setting up an SMSF to make sure you are able to compete against large funds.
- Ongoing costs for running an SMSF are estimated at about $2,000 a year for an average-sized fund. Will having an SMSF save you money or waste it?
- Do you have enough investment knowledge to ensure your SMSF can perform better than a professionally managed fund you might put your money in?
- Are you aware of, or willing to comprehensively learn, all your legal responsibilities and the tax implications of your fund?
- You must keep comprehensive records and organise for your fund to be audited each year by a qualified auditor.
- You may not have access to the low-cost insurance offered by other funds so you will need to make sure you have adequate life insurance outside of super.
- You must only use the money in your SMSF to provide retirement benefits. Illegally accessing your super can have huge repercussions.
Need more info? Looking after your super is a big job and not one to be taken lightly. The ATO and ASIC have developed a guide for those considering setting up an SMSF.
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