Why an SMSF is a substantive structure option for your superannuation

Have you considered a Self-Managed Super Fund structure for your superannuation? SMSF Senior Partner, Kathy Evans, highlights some of the benefits of an SMSF.

In this day and age, planning for retirement is high on the agenda for many Australians. There is daily media coverage of options for how and where to invest superannuation monies. Both industry and retail super funds are becoming more and more active in the offerings and options available to their members. Amongst all of this activity it is timely to sit back and consider why an SMSF is a very viable alternative as a superannuation investment structure in Australia.

Look for control and flexibility

If you ask the question as to why someone has an SMSF, generally, the answer includes two key words - “control” and “flexibility.” As is required to meet the definition of an SMSF, every member is a trustee/director and every trustee/director is a member. Therefore, an SMSF member is in control as they are responsible for defining the investment strategy and managing the investments. An SMSF can also provide the flexibility to invest in different types of assets such as property, international assets, private companies and trusts.

Whilst the above points for control and flexibility are important, there are many more reasons why an SMSF is a feasible structure option for your superannuation. These reasons include the following:

• Increased engagement with superannuation

Having access to a vehicle which encourages Australians to take a greater interest in their superannuation is positive. As mentioned above, there are some specific requirements for SMSFs. Therefore, if you are considering an SMSF, you MUST take this responsibility seriously and take a greater interest in the management of your superannuation.

• Timing of contributions

A member of an SMSF has direct access to the bank account of the fund, therefore they can transfer/deposit contributions to the fund easily and quickly.

• Pooling of different member’s super to achieve greater scale

An SMSF allows for up to four members which allows for the pooling of superannuation monies to potentially give greater flexibility and access to different investments.

• Estate Planning/structuring – e.g. use of reserves

Estate Planning for SMSFs gives the same options as industry and retail superannuation funds with respect to Death Benefit Nominations and Reversionary Pensions. When a carefully considered estate plan is put in place by a legal adviser, an SMSF is an invaluable tool in this planning as it can allow for increased flexibility for distribution of superannuation to relevant beneficiaries including the use of reserves for effective allocation of earnings.

• Specific investment options – property, unlisted, etc

An SMSF allows for investment in a broad range of assets including property (both residential and commercial), international assets, unlisted companies and trusts, artwork, antiques, investment into industry/retail funds etc.

• Acquisition of allowable assets from related party

A unique benefit of an SMSF is the ability of the fund to purchase certain types of assets directly from a related party. The most common types of assets which fall under this category are listed shares and commercial property.

• Lease of Business Real Property (BRP) to related party – small business advantages

In addition to being able to invest in commercial property in an SMSF, such a property can also be leased to a related party on the basis it’s on “arm’s length terms.”

• Ability to switch investments more easily – agile

Given the responsibility for the day to day management of an SMSF is in the hands of the trustees/members, this allows for agility around changes in investments within the fund (obviously dependent on the types of investments – e.g. listed shares). There is no need to go through a lengthy process of investment applications, processing and approval, as the decision can be made by the trustees/members and the investment change undertaken immediately.

• Timing of pension/lump sum withdrawals

SMSFs in the drawdown stage also give their members significant flexibility on how often they draw money and how much they draw on each occasion.

• Maintain accumulation and pension accounts within SMSF

Each member in an SMSF can have both accumulation and pension accounts within the fund (dependent on age and circumstances). In fact, if a member satisfies the requirements for commencing a pension, they can have as many pension accounts as they choose based on when contributions are made while maintaining separation between the taxable components of different contributions.

• Capital Gains Tax (CGT) planning, particularly when in pension mode

Planning when assets are sold, in conjunction with when pensions are in place for SMSFs, can be a critical tax saving strategy. This type of planning can save considerable money for retirement purposes.

• Develop and maintain a specific type of investment strategy

The development, maintenance and regular review of an investment strategy for an SMSF has received a lot of attention lately. A positive side of such requirements is that it is clearly up to the trustees/members of an SMSF to choose the investment strategy/focus of an SMSF and there is nothing in the legislation which prohibits any mix of investments. The key criteria is that investments within an SMSF always satisfy the Sole Purpose Test – i.e. the provision of retirement benefits for its members.

• Considering your family’s approach to finance

An SMSF can be an important structure within a member’s family group and can be considered in addition to other structures such as companies, trusts, partnerships, etc. The SMSF can be used in the family group overall planning allowing a Family Office approach.

• Specific advice rather than just a number

Rather than just being a member number in a large super fund, being a member of an SMSF means there is no more than three other members. This allows for specific advice to be provided to the member and/or the fund.

• Personalised client service in comparison to an Industry Fund – don’t get an automated phone message when you call

In addition to not being a small fish in a big pond, seeking specialised advice for an SMSF allows for personalised client service and the opportunity to deal with people who are specialists in their field. Access to such assistance is also not limited to a ‘9 to 5’ availability.

• Fees not linked to account balance – greater efficiencies as balance increases

The cost of managing superannuation is a key factor for many Australians. As superannuation balances increase, a great advantage for SMSFs is the ability to achieve cost efficiencies, as the majority of these costs are charged based on work undertaken, not as a percentage of the balance of the fund.

If you are interested in discussing further the potential benefits that an SMSF structure can offer, get in touch with a Findex SMSF Adviser and we can work through a solution for you.