The Benefits of an SMSF

Why should you set up a self managed super fund (SMSF)?

There are three main benefits to setting up an SMSF: cost, freedom and control.

The Benefits of an SMSF

1. Costs

When your superannuation funds/assets exceed a certain amount, having an SMSF would provide greater cost benefits than a retail or industry superfund. This is because the costs for running your own fund tend to be mostly fixed and is not dependent on the total amount of assets you have.

Other superannuation funds usually charge a percentage of assets as their fees, so the higher your account balance the more you pay. And if you have other members in your superfund, you can pool your funds together and share the fixed costs.

For example, if you have $100,000 in an SMSF and the cost to run it is $1,000, the fixed cost is 1% of your fund balance. However if you have another member (ie. your partner) in the fund who also has $100,000 (a total of $200,000 in the fund) in their superannuation, the fixed cost is 0.5% of the total fund balance.

In addition to cost benefits, pooling your assets will allow you to gain access to investments that are only available to those with higher fund balances (ie. property or wholesale investment funds). A higher balance will also allow you to better diversify your investments.

2. Freedom

An SMSF gives you the freedom and greater flexibility when it comes to a range of important decisions such as how benefits can be paid to members when they retire or how death benefits are paid in the event of a member’s death. You will also have the option to have your fund pay out in assets instead of cash.

3. Control

Just like its name, an SMSF is self managed therefore it gives you control over the decisions made in the superfund. You have the power to choose and develop an investment strategy that is tailored to your needs and have a direct say in all investment decisions (unlike retail or industry superfunds).

You will have access to a wider choice of investment options such as listed shares, real estate, corporate bonds and managed investments. There is also the option for you to borrow within your SMSF to give you leverage for certain investments.

An SMSF will also allow you to plan and structure effectively for certain tax events that is not available in a public offer fund.

[Photo credit: Martin Howard (Flickr Creative Commons)]