Three advantages of contributing to a SMSF are:
- Control – trustees get better control of the investments, death benefits and retirement benefits within a SMSF. There is a broader range of investment options, including the purchase of property, for SMSF’s.
- Tax effectiveness – SMSF’s pay 15% tax on earnings and assets, such as property purchased within an SMSF, can potentially be CGT-free if held until retirement
- Cost savings – the management costs can be potentially lower than an industry fund, especially with customers that have sufficient balances or expect to have their balances grow
Four disadvantages are:
- Cost – can also be a disadvantage, especially for funds with balances under $200,000. Some industry super funds have very competitive cost structures so a higher fund balance is really required to show clear cost benefits.
- Obligation of Trustees – trustees are bound by law to responsibly manage a super fund. Non compliance can result in severe penalties.
- Significant administrative and compliance tasks – trustees must undertake significant tasks that can be often difficult and time consuming.
- Fund performance – There is a likely chance that the fund may not perform as well as those of the retail or industry funds where the investments are run by professional fund managers
Those that should consider a SMSF will have sufficient assets to generate sufficient cost benefits, wish to control their investments, wish to minimise tax and maximise retirement benefits, wish to use the SMSF to provide more flexibility in their retirement and estate planning and have the time, interest and ability to maintain the fund.
An SMSF may not be suitable for those that have insufficient assets, do not wish to have a higher level of control, have relatively simple retirement needs or do not have the time, inclination or capacity to manage the fund.
Contact us if you have any questions or would like to get some professional advice on your superannuation.