Australian citizens in the past have not been known for their tendency to save significant amounts of money for their retirement, which is why the government established a compulsory superannuation program where the employer that sets aside a percentage of the employee’s earnings for their own retirement. Generally, employers have deposited these funds on the employee’s behalf into industry regulated Superannuation Funds. However, in more recent years a significant number of Australians now prefer to manage their own superannuation funds because they have learned of the many benefits this approach can offer. Among these Self Managed Super Fund or SMSF, advantages are as follows: Greater Choice for Investment SMSF offers great investment flexibility in many assets including listed and unlisted domestic and overseas options, managed funds, bonds, trusts, and shares. It offers flexibility in owning commercial real property and residential property. It allows SMSF owners to make an adjustment to their portfolios that coincide with corresponding changes in the market through hands-on investment.
Full Control SMSF offers full control over your own superannuation assets and gives you flexibility in making your own decisions on how to best invest the assets held in your superannuation fund all within regulatory guidelines.
However, you must be proactive in managing your super fund in order to achieve your investment objectives. SMSF allows you to invest in shares, property, cash, or any other assets suitable to your SMSF investment objectives. The downside of being totally in control of your SMSF investments is you must have the ability to discern which investments will yield good results or have the input of a financial planner or accountant which can provide guidance in relation to such matters. Tax Planning and Concession SMSF may form a large component of your overall investment strategy. Your super fund may serve as a tool for tax planning primarily because of its flexibility as well as its low barriers in realising your objectives. It can also be used as a powerful strategy in generating income by means of concessions. This can be in the form of capital gains taxed at 10%, utilisation of franking credits from dividends, concessional taxation of pension benefits and end-benefits, and concessional 15% tax rate for SMSF income. Succession Planning SMSF can become the best succession planning tool as it allows you to leave carried tax losses to the next generation. It provides ease of use through reversion of your own death pension to your spouse. This prevents any hassle on the part of your spouse filling out industry super fund’s paper work just to prove their identity and claims for eligibility. SMSF authorises you and any other authorised individuals to take control of the cheque book. Estate Planning SMSF can be considered a multi-generational family benefit that is long-term. This can be a very useful tool for those individuals who are long term minded and are interested in creating a legacy which is multi-generational. Lower Fees and Better Investment Performance Under Australian law, SMSF members are not required to pay the management fees which are mandatory when investing with industry regulated superannuation fund. It is also noted that SMSF investments have better performance when compared to the industry regulated super funds from 2006 to 2008 data. However, a SMSF is required to be audited annually to ensure it adheres to regulatory guidelines and commonwealth law in Australia which can be costly exercise.