What is a self managed super fund vs. a standard superannuation fund?
May 16, 2020
Employees automatically have contributions made to their super fund by their employer, but if you’re self-employed that responsibility falls on your own shoulders.
In Australia there are a number of super options available to self-employed individuals including self managed super funds (SMSF). Like standard industry or retail super funds, SMSFs are devoted to providing for your retirement. However, there are a number of key differences which you should understand before making the right choice for yourself. SMSFs are often a lot more involved than people realise.
What is a self-managed superannuation fund in Australia?
A self-managed super fund is a private super fund that you manage yourself. It is also a type of trust which means it needs its own Australian Business Number (ABN), Tax File Number (TFN) and bank account. A SMSF can have up to four members or trustees who are all involved in managing it.
Is a self-managed super fund worth it?
The main advantage of a self managed super fund is the level of control you have over your own super. You choose the investments and insurance that you want. The downside is that all this control means a lot of responsibility also falls on your shoulders. SMSFs require much more effort and knowledge than traditional funds so you should only set one up if you understand the risks and responsibilities involved. According to Money Smart, SMSFs tend to perform worse than professionally managed super funds.
SMSF risks and responsibilities
- Managing a SMSF is a significant time commitment.
- Costs for setting up and running a SMSF can be high.
- You are personally liable for all decisions made, even if you get professional help.
Non-compliance can result in penalties and fines from the Australian Tax Office.
- You are responsible for managing the fund, no matter what your circumstances (for example, even if your business cash flow is low).
- The investments you make might not result in good returns. You will need sound knowledge and skills about investing to properly manage a SMSF.
- If your SMSF loses money due to theft or fraud you will not be eligible for compensation, unlike traditional super funds would.
- Insurance may be impacted or harder to obtain for SMSFs compared to traditional super funds.
- Relationship issues with other trustees of the fund could have a negative impact on your SMSF.
Can I have a SMSF and an industry fund?
It is possible to make contributions to both a SMSF and an industry fund. However, it would be a unique circumstance that would make this a beneficial strategy. Having two funds would mean extra costs and more time commitment, so the pay off would need to be worth it.
If you have an industry fund, you can roll your super over to an SMSF. The opposite is also possible: if your SMSF winds up, you can roll your super over to an industry fund. Whatever your circumstances, it is important that you make the right decision for you. Seeking expert advice can help give you the tools you need to make an informed decision. At Lawrence Group, we offer financial services, business planning and support for stronger local businesses. Speak with us today to see how we can help you.
This article is general information only. It does not give business, accounting, taxation, financial planning or other professional advice or service. It does not consider your specific situation, objectives or needs and if personal advice is required, a detailed analysis of your particular circumstances would need to be sought. Please see our Privacy and Disclaimers page for further information.
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