Superannuation is still the first choice for accumulating wealth for retirement by most working Australians. When compulsory superannuation was first established, the bulk of investment savings were controlled by retail and industry superannuation funds. However, in the past few years, self managed superannuation funds (SMSF) have experienced phenomenal growth.
The rules for setting up and running SMSFs are set down by the Australian Taxation Office (ATO) and the management of the funds are subject to regular scrutiny by the ATO. This has not stopped people from wanting to set up their own funds, even though the reporting and administration requirements are quite onerous. So just what are the benefits to SMSFs as opposed to public funds that have driven this enormous growth?
More Control over Investment Choices
One of the major drivers is the direct control the trustees have over the investment choices. They can establish their own investment strategy and direct the funds exactly where they want them. This is a departure from the way public funds are run. Some public funds perform better than others, and while the members may have a choice in terms of the spread of investments, they have no control over the actual selection.
In contrast, SMSF trustees can select from a wider range of investments including unlisted shares, residential and commercial property, and collectables such as art work, stamps and coins. Provided they have the expertise from within their own ranks, or are prepared to seek professional investment advice, these investments may perform much better in the long term than more traditional ones.
Risks must be balanced with benefits and it is important for the trustees to understand that their retirement incomes will be affected by the decisions they make. They must also ensure that all reporting and auditing requirements are being met and for this, they often turn to qualified accountants to assist them.
Estate Planning is Easier with an SMSF
SMSFs can only have up to four members, all of whom are trustees with equal authority. This is to ensure that the opinions of all the trustees are given even weight when investment decisions are being made. Most SMSFs have been established by business people with trustees being family members. Estate planning is easier as the trustees can nominate who should receive their super death benefits on their passing without any of the constraints placed on other super arrangements.
There are also tax benefits attached to setting up and running an SMSF. Taxation is a specialised area, and most trustees seek professional advice from accounting firms like Affinity Accounting Plus. With specialist assistance from accountants and investment experts, trustees can successfully manage their SMSF for their own benefit.
