A self-managed superannuation fund (SMSF) is essentially a do-it-yourself super fund for a maximum of four people which gives you control of how your super is invested. In recent years, SMSFs have become increasingly more popular. While an SMSF can offer many benefits, it may not suit everyone. It is therefore important to understand the basics of SMSFs before deciding to use this as your chosen method to save for retirement.
What are the benefits of an SMSF?
- increase the level of control you have over your retirement
savings compared with a public super fund
- give you greater choice and flexibility when it comes to your
- enable you to invest in business real property, however, it is
important to understand that this could limit the investment
diversification and level of liquidity
- be a cost-effective option if you have a high fund balance,
compared with some traditional super fund structures, such
as a retail fund
- be structured to provide an income in retirement that is
tailored to your individual needs
- enable you to move easily from the accumulation phase (when
you are saving for retirement) to the pension phase (when you are drawing a retirement income).
What do you need to be aware of?
As the trustee of an SMSF, you are legally responsible for the fund’s compliance. There are significant administrative obligations and compliance requirements, which can involve complex and time-consuming work. You need to have a good knowledge of the operations and comply with strict laws as hefty penalties may be incurred if the fund is not managed correctly.
The main components of compliance for an SMSF relate to:
- how and when an SMSF is permitted to borrow
- in-house asset rules
- acquisition of assets from related parties, and
- conducting all dealings at arm’s length.
Each super account within the SMSF is required to have its own cash account and must not become overdrawn.
There are large costs associated with the set-up and management of an SMSF and it is recommended that you should have at least $200,000 to invest in order to make the exercise of establishing an SMSF worthwhile.
Is an SMSF right for you?
- Do you have at least $200,000 in super?
- Do you need a super fund that gives you complete control and
access to a very wide range of investments?
- Are you eligible to be a trustee (over 18 years, a resident of
Australia and not a disqualified person)?
- Do you have the time and knowledge required to manage
the fund’s investments, its compliance requirements and its administration?
Police Bank has a long established alliance with Bridges to provide financial advice to our Members. To find out if an SMSF is the right type of super product for you, we recommend that you speak with a Bridges financial planner. To arrange a complimentary obligation-free initial consultation please call us on 131 728 or visit our Financial Planning page