A Self Managed Super Fund (SMSF) can allow you to have more control over your financial future, and whilst it can be tailored to suit your individual needs, it isn’t for everybody. Here are some points to consider when deciding if an SMSF is right for you.
- Level of control and time involved
Having a greater level of control is important to many people, however as a trustee you have to be willing to invest time into managing your SMSF. Operating a SMSF also requires confidence to make appropriate investment decisions – or pay for an advisor to assist in this process.
- Legal and administrative responsibilities
You will be ultimately responsible for your SMSF, which includes the administration, compliance, development and maintenance of an investment strategy, all whilst following the strict rules. Failing to meet these obligations can result in penalties, so if you don’t feel comfortable with these responsibilities it’s best to seek specialist advice.
- Appropriate minimum balance
You’ll want your SMSF to be cost-effective, therefore it is recommended to have a starting balance of at least $300,000, with the expectation that this figure will grow. There are a number of costs when it comes to running an SMSF besides the initial establishment fees, which include a trust deed, the creation of a company to act as a corporate trustee (which may not be applicable to you). There are also the additional costs of an annual tax return and independent audit, ATO fees and potentially investment fees so it’.
- Living overseas
One of the requirements of a SMSF is to be an Australian resident. Should you wish to live overseas for more than a year or so, it is best to seek advice. There are strict rules when it comes to having extended leave from Australia, and not following these can incur a heavy penalty.
- Insurance cover within your existing super fund
It’s important to also consider any existing insurances or superannuation funds that you may currently have. Doing this can be quite involved, so we recommend you seek personal insurance advice to discuss any implications of rolling over existing superannuation and setting up a SMSF.
- Compensation, complaints and dispute resolution mechanisms
In the case of theft or fraud, SMSF is not subject to the same government protections, so you can’t apply for compensation through the government’s financial assistance program should these events occur. There is also the chance of disputes and complaints arising, and whilst SMSF trustees don’t have access to the Superannuation Complaints Tribunal, there are other services that may be helpful, such as the Financial Ombudsman Service (FOS) and Credit and Investment Ombudsman (CIO).
- SMSF structure
The benefit of a SMSF is the control that you have over it. As a Trustee you can choose what to invest your SMSF money in, provided it fits within the rules. You can also choose between setting up a corporate trustee or an individual trustee. The decision can be difficult, especially if you are unsure as to how each option differs, so it’s helpful to talk to an adviser about the benefits and limitations to each to decide which will be more appropriate for you.
- Who should be a member?
Currently the SMSF rules allow up to 4 members which means some parents have chosen to include their children as part of their SMSF. Whilst there can be some pitfalls with this strategy it can be appropriate for estate planning and transferring assets to the next generation. There is legislation currently proposed to increase the maximum members from 4 to 6 which will provide greater flexibilities to parents wishing to include their children as part of their SMSF.
- Exit strategies
If your circumstances change you may need to close your SMSF, and if this is the case it is important to have an exit strategy. There are a number of things to consider when that happens, such as closing costs. In the event of closing your SMSF it is important to seek advice to make sure you end up with the best outcome when it’s finalised.
Overall, choosing a Self Managed Super Fund is entirely up to you and your individual needs, however, each consideration comes with its pros and cons, and making sense of it all can be overwhelming, so it is important to seek professional advice. Getting the right assistance when it comes to financial choices is essential to deciding what is best for you and your financial future.
Please note that the advice is general advice only and does not take into account your Individual circumstance, so please make a time to talk to our team or your financial planner about your situation and let us help you put your mind at ease about your Superannuation.