The number of Australians choosing to manage their own super through a self-managed super fund (SMSF) is bigger than you might think. There are currently over 350,000 SMSFs with a total of over 700,000 members. An estimated 2,000 new funds are also being established each month.
How do SMSFs work?
Broadly, a SMSF is a fund with less than five members. Each member is also a trustee of the fund. Alternatively, the fund can have a corporate trustee structure. Some of the other key features of a SMSF are:
? a SMSF must be maintained for the ‘sole purpose’ of providing benefits
to members upon their retirement;
? trustees are required to prepare and implement an investment strategy
for their fund. This controls the way contributions are invested.
? wide flexibility in investment choice — for example, direct property,
managed investments and direct shares can all be included in the
portfolio
? approved auditors must be appointed and tax agents, accountants and
financial advisers may also be involved in the running of a SMSF, and
? ultimate legal responsibility rests with the individual trustees (i.e., the
members of the fund) even if assistance is outsourced to the above
professionals.
Why consider a SMSF?
Managing your own super can give you greater control and flexibility. The discretion to pick and choose your own strategy and investments, as well as the tax benefits of superannuation make SMSFs a unique investment tool.
There are a number of advantages and disadvantages associated with SMSFs.
Advantages
? Investment choice — The portfolio can generally include a wide range of
investments including direct property (use SMSF funds to buy an
investment property) which may not be available to a retail or industry
fund.
? Control — Trustees have complete control over the fund and its
investments (within the legislative framework).
? Holistic approach — SMSFs may provide you with a range of options in
terms of estate planning and benefit payments.
Disadvantages
? Trustee responsibility — Each trustee is fully responsible for the
decisions and operation of the fund. This includes the overall legislative
compliance.
? Extra costs — A SMSF has additional costs such as the auditing of
accounts, tax return administration and supervisory levies.
(Source: SPAA 2011 (Self-Managed Super Fund Professionals’ Association of Australia) Call 02 9858 2446 for more information.