Self-Managed Super

As more people begin to fund their retirement through superannuation, the issue of having more control over retirement savings has increased in importance. One of the ways to achieve this is by managing your own superannuation through a Self-Managed Superannuation Fund (SMSF). A SMSF is a superannuation fund established and managed by individuals and is limited to a maximum of four members. A member cannot be an employee of another member unless they are related. Unlike large superannuation funds, all members of the SMSF must be trustees (or directors of the trustee company). Otherwise, the structure and operation of an SMSF is essentially the same as the large superannuation funds managed by banks and financial service institutions.

An SMSF provides you with an opportunity to have significant involvement in the management and investment of your retirement savings. For this reason, SMSFs have become a popular alternative to public offer superannuation funds by offering the following advantages: Control You have control over how your retirement assets are invested. Furthermore your SMSF can allow the consolidation of several accounts into one. Including your family members in the SMSF makes it easier for you and your family to administer and understand your retirement position. With a large superannuation fund, you often have limited knowledge of how your investments are performing and you have little, if any, input into investment decisions. Choice You have a larger range of investments available to you. Your SMSF can invest in shares or bonds, participate in property syndicates, purchase its own investment property, buy artworks, or acquire any other asset that suits the investment objectives of the fund. Flexibility You have the immediate ability to modify investments to correct investment performance. Furthermore, on reaching retirement your assets can be retained in the SMSF and paid out to you as a pension tailored to meet your retirement lifestyle needs. Tax Savings SMSFs, like other superannuation funds, can use credits from franked dividends to reduce tax and obtain concessional capital gains tax treatment on the sale of fund assets to minimise taxation consequences. Furthermore, you can structure your investments in your SMSF to achieve a very low effective tax rate. Financial Protection You can ensure that you and your family have financial protection in the event of death or temporary or permanent disability through insurance that will be tax deductible to the SMSF. With a public offer superannuation fund, you often have limited insurance coverage and sums insured. Business Planning If you are involved in a business, an SMSF can offer asset protection from creditors. Furthermore, your SMSF can invest in business real property, such as the premises from which you operate your business. Cost Savings To quantify the cost savings from a self-managed fund you can compare it with a managed fund. Managed funds can charge up to 5% on contributions made to the fund. Ongoing annual management charges can average 2.0%.

Most individuals can establish a SMSF. However, there are a number of important considerations you should consider before commencing an SMSF, such as:

• the total value of retirement benefits that will be managed in your SMSF
• the amount of time you can commit to the administration of your fund; or your access to administration outsourcing services

It is important to remember that a SMSF may not be the most cost effective way to save for your retirement. This may be due to practical considerations such as insufficient funds or contribution levels. As a general rule of thumb, you should consider establishing a SMSF if you and the proposed members of your SMSF have $200,000 in superannuation or intend to make substantial contributions.

Your time and commitment will vary depending on how involved you want to be in managing your SMSF and investing. Some individuals spend considerable time and effort actively studying investment markets and superannuation law. However, the majority engage professional advisers to formulate and implement investments, administer the SMSF and undertake the more complex work. This enables you as the trustee to retain ultimate control, responsibility and ultimate decision-making for your fund.