Why would I consider a SMSF vs a regular Superannuation Fund?

— 8 min read

A Self Managed Super Fund (SMSF) is a Superannuation trust structure with the sole purpose of providing for your retirement. Much like any other Super fund you say? Well kind of!

How does a SMSF work?

SMSFs have their own Tax File Number (TFN), Australian Business Number (ABN) and bank account, which enables them to receive contributions and rollovers, make investments and pay out pensions on behalf of the fund’s members. All SMSF investments are held in the name of the fund and are controlled by the trustees of the fund. Being a trust, a SMSF requires a trustee. There are two trustee structure options:

1. The corporate trustee

A company can act as the trustee in which each member of the SMSF is a Director. The benefit of this structure is that it allows for simpler recording and registering of assets, providing administration efficiencies and flexibility in membership. There are upfront establishment and ongoing fees applicable with this structure. It is best to have a clear understanding of the costs associated with this structure before setting it up.

2. The individual trustee

Each member of the fund is appointed as a trustee, with a minimum of two trustees required. Whilst simple to establish, there are several key downside risks of individual trustees including:

  • Should the trustee of the SMSF be subject to litigation, then the trustees may potentially be personally liable for the costs if they are unable to be recovered from the assets of the fund. Whilst this type of action is uncommon, having a corporate trustee will provide additional protection by limiting liability to the assets of the company not those of the underlying directors.
  • Single member funds can only exist under a Corporate Trustee arrangement where the member is also a director of the company. If the fund had individual trustees, it would be necessary for another individual to act as the second trustee and assist in the running of the fund. This is particularly relevant in the event a spouse, also acting as an individual trustee, passes away leaving a single surviving trustee and member.
  • Often if a SMSF wishes to borrow, the lender will insist that the SMSF has a corporate trustee.

How do SMSFs differ compared to regular Superannuation Funds?

The main difference between SMSFs and other Super funds is the level of control and flexibility individuals have when it comes to tailoring the fund and available investments to meet their specific needs.

SMSFs have strict administrative obligations that require trustees to maintain records, prepare financial statements, complete the fund’s tax return and organise an independent audit every year.
Some people are more comfortable than others. Some people want the control that comes with the idea of managing their own Super, but be aware that taking control of a SMSF means that you are also being responsible for managing your own retirement funds which, to be done successfully, will involve significant time and effort.

In a SMSF environment, the trustees (who are also members of the fund) have absolute control over how the Super fund is managed and administered; and are ultimately responsible for ensuring the fund is compliant with Superannuation regulations at all times.

This differs from retail and industry Super funds, which are designed to benefit a large group of members and decisions are based on collective interests rather than what is best suited to you as an individual.

Is help available to manage my SMSF?

There are many professional financial service firms that provide comprehensive support for trustees managing their own SMSFs. You can take advantage of this type of service from the DPM Specialised SMSF Team who can provide a comprehensive SMSF package to suit your needs.

DPM can take care of all the accounting, compliance requirements and audit of your fund and leave you in control to pick where and how you want to invest your retirement savings. If you need help with investments or insurances within your SMSF, you can go a step further and engage the DPM Wealth or Insurance Teams who can provide investment advice to suit your desired portfolio strategy.

For further information please call 1800 DPM DPM or visit our website to arrange an initial chat.

I’d like to discuss my options

* The information contained in this site is general and is not intended to serve as advice. DPM Financial Services Group recommends you obtain advice concerning specific matters before making a decision.

Authors

William Ezzy

B.Comm, MAppFin, CFP®

Consultant
Melbourne

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Will joined DPM in 2016. More than 10 years’ experience in the Financial Services industry has allowed him to work closely with a varied client base. Will specialises in developing long term wealth management plans, tailoring ongoing strategies to ensure his clients are in the best financial position to achieve their goals.