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SMSF deep dive: What you need to know about a self-managed super fund

There are many benefits to self-managing your superannuation but, as with all financial decisions, it is important to weigh up the risks, rights and responsibilities of managing your own fund before making the decision to proceed.

Benefits of a self-managed super fund (SMSF)

The obvious benefit of self-managing your superannuation is the direct control you have over your retirement savings. Many users enjoy being able to directly control their investment strategies and act immediately on their decisions. They also benefit from relying on their own investment skills rather than those of fund managers.

In addition, more direct control over your super assets enables more control over the associated costs: there may be a reduction in management fees and the ability to take a more cost-considered approach when seeking investment advice.

Self-managed super fund

Other benefits of self-managed super include the ability to consolidate the assets of other family members into one fund as well as the ability to transfer some personal assets into the super fund to boost earnings potential and take up tax advantages.

Risk profile

While every investment carries a degree of risk, the ATO points out that there are a number of specific risks associated with operating an SMSF.

Like company directors, trustees of an SMSF assume full legal responsibility for all aspects of the fund, and as such are ultimately responsible for any decisions contrary to superannuation regulations. Responsibilities include placing funds in approved investment classes, as well as accurately reporting investment returns, costs and deductions. A working knowledge of the regulations for SMSF trustees will minimise such a risk, but it is one to be constantly aware of.

Arguably the biggest risk factor for SMSF trustees, though, is the reduced legal protections in place in the case of theft or fraud. Current regulations do not afford SMSFs access to statutory compensation.

In addition, SMSFs are also ineligible to lodge a claim with the Superannuation Complaints Tribunal. As a result, SMSF trustees must be confident in their own vigilance and risk appetite when investing funds and also in their dealings with associated advisers.

Adding up the numbers

Average operating costs for an SMSF are estimated by the ATO to be 0.50 per cent of the fund’s value, meaning there is a cost/benefit consideration when determining the viability of self-managed superannuation. That is because there are administration fees and operational costs to cover to ensure the SMSFs are managed according to superannuation regulations.

However, as well as financial impacts, there are other demands placed on SMSF trustees that can affect the returns achievable and even the legality of the fund’s operation. Considerable time is required on the part of trustees to manage investments and oversee tax, valuation, accounting and investment contributions. As such, financial and time constraints need to be weighed up to determine the viability of taking on an SMSF.

Knowing how to set up an SMSF from the outset is essential to ensuring its ongoing success. For those still unsure about whether they would be able to operate an SMSF, CPA Australia operates the free Self-Managed Superannuation Fund Trustee Education Program, which goes through the responsibilities for anyone managing their own super.

The decision to self-manage your super fund is not one that should be made lightly. But if you have a clear understanding of the benefits of an SMSF, as well as the operational challenges you'll need to address, from the outset, there's no reason you shouldn't consider making the switch.

If you want to learn more about SMSFs, download an information pack today.

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