Self-Managed Super Funds (SMSFs) have gained immense popularity in Australia. According to ATO figures, as at February 2024, SMSFs collectively held $87.6 billion. This figure represents over a quarter of all super assets.

But just because ‘everyone else’ is doing it, does that mean you should too? FOMO is never a good reason to make a major investment decision.

At Elston we do see the positives in SMSFs, and we’ve helped many people to take advantage of the benefits they have to offer. However, we don’t believe that SMSFs are for everyone.

In this article we’d like to explore not just the positives, but also some of the things that must be considered before you take on an SMSF.

Several factors have contributed to the widespread adoption of SMSFs:

Personalisation:

As an SMSF trustee, you have a certain amount of autonomy when it comes to the selection of investments, monitoring performance, and managing contributions and withdrawals. This could allow you to consider investment options beyond shares, and perhaps include commercial properties and, in some circumstances, collectibles.

SMSFs are also tailored to the specific needs of the individuals involved. This means that managing cash flow in retirement can be customised to match the income levels enjoyed during one’s working years.

Tax Advantages:

SMSFs can offer attractive tax advantages. With a higher degree of control, SMSF trustees can optimize tax strategies, minimizing tax liabilities or maximizing refunds. This level of tax efficiency is particularly appealing to those accustomed to shouldering significant tax burdens.

According to the ATO, in 2019-2020, SMSFs received $4.5 billion in tax concessions. These benefits include:

  • Concessional contributions taxed at 15%.
  • Income tax exemptions for funds in full pension phase.
  • Potential capital gains tax (CGT) exemptions and tax offsets

Transparency:

SMSFs provide visibility into the fund’s investments, empowering trustees with real-time knowledge of their financial position. This transparency can give you greater confidence. You can see how your money is being invested and how the assets in your portfolio are being actively managed and monitored.

Cost:

What are the establishment costs for a self managed super fund? What are the ongoing costs? And how do they compare to the super structure you currently have? Technological advancements and online automation can mean that the SMSF set up process is quite cost effective for you. On the other hand, if the balance in your super fund is too small, the cost savings might not be as attractive as you had hoped. Dig into the numbers and make sure it all adds up.

Multi-Member Funds:

SMSFs have the ability to pool super balances in multi-member funds. This is something that is often adopted by couples and families. In fact, 76% of SMSFs comprise two or more members. This pooling method can be a way to reduce fees.

Professional Support:

While SMSFs offer autonomy, trustees can still benefit from professional advice and support. Engaging a skilled adviser allows you to explore to enjoy the benefits of an SMSF, and to pass the administrative burden on to an experienced team.

Things to consider:

In summary, SMSFs can offer greater control, more tailored investment options, and potential cost savings and tax advantages. They also provide the opportunity for pooling super balances in multi-member setups. However, it is important to remember that as the trustee of an SMSF you are taking on significant responsibilities. This is why professional advice should always be sought before you set things in motion.

Don’t rush into a self managed super fund. At Elston there have been times when we’ve met with new clients who have taken on an SMSF without seeking advice. As a result they have not fully understood the pros and cons. In some situations, their super balance is too low, and they’ve probably made the move too soon. This could be because they’ve seen how popular SMSFs are, and they didn’t want to ‘miss out.’ But of course, you should never let FOMO influence your decisions.

Gather all the facts so you can make informed decisions. Elston has highly credentialed SMSF specialists who can guide you through the complexities of structuring and managing a Self-Managed Super Fund (SMSF). If you would like to know more, talk to an Elston adviser today.