Your Money, Your Control: Understanding Self-Managed Super Funds

Controlling your own financial destiny in retirement is an attractive prospect, and a self-managed super fund (SMSF) can deliver this. However, it’s important to understand exactly what an SMSF is, and whether it’s the right choice for you.

A self-managed superannuation fund is a type of private trust. It requires a trust deed, investments, and members who are beneficiaries who also act as the trustees. Members manage the SMSF themselves, as the trustees, to provide for their future retirement benefits.

The main difference between a self-managed super fund and an industry or retail fund is the level of control offered. In an SMSF, the members in their capacity as trustees choose where their retirement savings are invested, whereas public funds offer limited options, and the detailed investment decisions are made by others.

Unlocking the benefits: Why choose an SMSF?

Choosing an SMSF offers many advantages that can significantly enhance your retirement planning and wealth management strategy.

• More control and flexibility
  A super fund you manage yourself gives you direct control over your investment decisions, allowing you to tailor your investment strategy to your specific goals and risk tolerance.
• Wider investment choice
  While most retail superannuation funds offer a default ‘MySuper’ option as well as products letting you choose a mix of shares, listed property and fixed interest investments, an SMSF allows you to invest in asset classes not normally available in super funds with a wide public membership. Examples of these asset classes include private companies, property unit trusts, direct property, commodities and collectables.
• Tax optimisation
  Although SMSFs are subject to essentially the same concessional taxation rules as industry and retail funds, the opportunity to directly manage investments in a self-managed super fund provides more tax optimisation options, such as timing of asset purchases or sales in a particular year, or a re-contribution strategy resulting in potential death benefit tax savings.
• Estate planning
  SMSF members have the ability to nominate beneficiaries to receive their superannuation benefits in the event of their death, which can help ensure that assets are distributed according to their wishes.

Understanding unit trusts as an investment choice
A unit trust is a legal entity that holds and administers assets for the benefit of unit holders, making decisions about distribution of capital and annual income according to the number of units each investor holds. Unit trusts are a way of diversifying an SMSF investment portfolio.

SMSF trustees may have a particular unit trust in mind, where they are aware of other successful investors or recognise the abilities of the fund managers. One of the main advantages for an SMSF investing in a property unit trust is that its members are able to pool funds with other investors to purchase a property they could not afford to buy using only their own SMSF savings.

There are restrictions and complexities involved when an SMSF chooses to invest in a unit trust. It important to consider how the unit trust has been structured, if the other unit holders are related parties, how many other unit holders are involved and if any investor has control over the management of the trust.

Our experienced Bentleys team can assist with navigating these complexities to ensure your SMSFs unit trust investment remains compliant with current legislative requirements.

Is an SMSF right for you?
Before you embark on starting an SMSF, there are a number of points to consider.

• Fund size
  Although there are no specific rules about a minimum fund balance, it is important that the investment strategy for the fund considers the cost of running the fund to ensure that your retirement benefits are maximised.  Along with this you should consider your current savings, ongoing super contributions from employment and personal activities, and whether these are expected to continue to build on your retirement wealth.
• Running costs
  You are likely to incur expenses for administration, auditing, tax return preparation and compliance. Ensuring you have ongoing cash flow to cover these expenses by way of contributions or investment income and returns is essential to running an SMSF.
• Trustee responsibilities
  Trustees are responsible for investment strategy and decisions, so need sufficient financial knowledge to act appropriately. They must comply with the requirements of the Superannuation Industry (Supervision) Act 1993 regarding accounting records, audit, annual return lodgement and other provisions.
• Residence status
  An Australian SMSF must meet specific residency requirements in order to receive retirement savings tax concessions. The fund must be established in Australia as well as having all strategic decisions made in Australia, such as reviewing the investments and formulating its investment strategy. At least 50% of the funds must be attributable to members who are Australian residents at any time and overseas members cannot make contributions for the period they remain outside Australia.

Mastering your SMSF: A guide to success
The two main aspects of successfully running a self-managed super fund are compliance and investment management. Both can be extremely time-consuming.

Compliance involves adhering to the applicable legislation, and providing accurate accounting records, annual financial statements, audits, and tax returns.

Investment management requires trustees to be aware of the rules regarding available investment types, and to research, document, follow and annually review investment strategy and performance, taking account of risk, return, liquidity, diversification and insurance.

Professional advice can optimise your SMSF
There’s a lot to be said for the benefits of using professional advisors to assist in managing your SMSF retirement savings. They will help to ensure your SMSF remains compliant and performs well, in addition to maintaining accounting and member records and preparing annual financial statements and tax returns. Other areas where you may require assistance include the trustee structure and what happens if a member loses capacity.

That’s a lot to juggle, but Bentleys’ financial advisors can achieve all this while tailoring your SMSF funds management to your personal goals.

Want to know more about how Bentleys can help you?

Make a time for a chat with us today. We’re here to help you get where you want to be.

Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.