More and more Australians are looking to take greater control and be involved in their superannuation. With over a third of the total superannuation pool of funds in this sector, the Self Managed Super Fund (SMSF) is becoming the retirement vehicle of choice for many. There are now more than 603,000 SMSFs covering approximately 1.1 million members, with assets totaling close to $870 billion, growing faster than any other sector apart from mandated contributions to MySuper accounts .
The Rise of SMSFs
The rise in SMSFs is often attributed to baby boomers (those born between 1946 and 1964) who prefer to take control of their retirement assets rather than leave them to platforms or fund managers they struggle to understand. It's not necessarily that they believe they can outperform the market, but rather they want the control to see exactly how their funds are performing and the flexibility to adapt as needed. Additionally, there has been a notable increase in Gen X (born 1965 to 1980) establishing SMSFs, meeting the rough guideline of $200,000 to open a fund.
Key Benefits of SMSFs
Investment Choice
A primary benefit of SMSFs is the wider range of investment choices compared to retail and industry super funds. Trustees can invest in direct shares, residential and commercial property, collectibles, artwork, and more. Small business owners often use SMSFs to hold business real property, leasing it back to their business, providing steady income for the SMSF while freeing up capital for business growth.
Borrowing
SMSFs can now borrow, allowing trustees to aim for larger properties or implement strategies earlier. This flexibility is a significant advantage over retail or industry super funds.
Tax Minimization
All superannuation funds offer tax-free pension income streams in retirement, but SMSFs provide additional tax control and flexibility. Trustees can structure and time pensions, target franking credits, and significantly reduce tax. Many retirement phase clients even receive refunds from the ATO for excess credits.
Seamless Transition to Pension Phase
SMSFs allow a seamless transition from accumulation to pension phase without incurring various fees or taxes. Trustees simply minute the move to pension phase and retain their investments as is.
Estate Planning
SMSFs offer superior estate planning benefits. Trustees can design strategies to achieve desired outcomes with favorable tax consequences, including tax-free pensions to SIS dependents and tax-effective income streams to dependent beneficiaries. Non-lapsing binding nominations ensure that beneficiaries receive their entitlements without the need for continuous updates.
Asset Protection
The asset protection offered by SMSFs is crucial in today’s litigious environment. Superannuation benefits are protected even in events of litigation or bankruptcy, providing a safety net for trustees.
Cost Considerations
While the cost of running an SMSF can be lower than alternative platforms, especially with technological advancements, it's essential to consider the value of the benefits. Annual administration costs typically range from $1,200 to $5,500, including accounting, supervisory, and audit fees. Engaging an SMSF Specialist Advisor, Financial Planner, Accountant, or Lawyer with SMSF expertise is advisable to maximize the fund's potential.
The Power of SMSF Control
SMSFs offer unparalleled flexibility and control over superannuation investments, tax strategies, and estate planning. Trustees can sleep soundly knowing they have control over their finances and understand their investments.
Ready to Take Control?
Review your last superannuation statement and see if it gives you the same confidence. If you’re interested in exploring your options, contact us at We Love SMSF. We have offices in Gold Coast and Melbourne and can meet clients via Teams. Click here for appointment options.
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