The critical difference between a self-managed super fund (SMSF) and industry or retail super funds is that an SMSF is a private fund you manage yourself.
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The critical difference between a self-managed super fund (SMSF) and industry or retail super funds is that an SMSF is a private fund you manage yourself.
Some Australians prefer a self-managed super fund because of its flexibility – they get to save for retirement on their terms.
While this is true, an SMSF also requires time, effort, and a significant commitment to do it properly because, with an SMSF, you are fully responsible for its success.
There are also legal requirements to take into consideration when running an SMSF. You will need to:
Managing an SMSF can be a good option for those confident with finances and ready to take on the responsibility. However, it can feel like a lot to manage for many people.
That’s why, for most, an industry or retail super fund is usually a much easier and more practical choice. You get peace of mind knowing your retirement savings are in good hands without having to handle all the details yourself.
Think of your SMSF investment strategy as a personalised roadmap guiding your investments towards your goals for retirement.
It exists as a live, written document and explains how your SMSF investments meet each member’s retirement objectives — an SMSF can have up to 6 members, each being an SMSF trustee.
According to the Australian Taxation Office (ATO), your SMSF investment strategy must legally consider several vital factors. We have outlined these below.
When writing your strategy, you should factor in your age, employment status, and retirement date. This will help you work out your risk appetite.
What lifestyle do you envision in retirement? Having an idea of how you want to spend your time will also help you to determine investment goals.
It is essential to understand the risks associated with different investments and how they align with your comfort level.
Spreading your investments across various asset classes can help to manage risk.
You will need to ensure your fund has enough cash to cover expenses and pay benefits to all members of the SMSF when required.
Consider if insurance is necessary to protect your fund and members.
If it sounds like a lot to think about, a good SMSF investment strategy template can do some of the heavy lifting for you.
By providing a structured framework, a template can help you consider all the essential factors and ensure your investments align with your retirement goals. A SMSF investement stratgy template should consider the following.
Your details | Notes |
---|---|
Name | The names of the trustees and/or beneficiaries. |
Current age | The current ages of the trustees and/or beneficiaries. |
Planned retirement age | The planned retirement ages of the trustees and/or beneficiaries. |
Your risk profile | The investment risk tolerance profiles of the trustees and/or beneficiaries. |
Retirement objectives | Notes |
---|---|
Goals | Specify the desired income (annually) to maintain your desired lifestyle during your retirement. |
Capital growth | Estimate expectations for asset appreciation over time. |
Diversification strategy | Notes |
---|---|
Asset types | Different asset classes you plan to invest in. |
Allocation | Specify what percentage of the total SMSF portfolio will be allocated to each asset class. |
Strategy updates | Notes |
---|---|
Frequency | Define how often the SMSF investment strategy will be reviewed to ensure it remains appropriate. |
Reasons | Specify triggers for updating the strategy, such as changes in employment, health, or market conditions. |
Insurance considerations | Notes |
---|---|
Insurance coverage | Indicate whether you have personal insurance coverage through the SMSF (such as life insurance or total and permanent disability insurance). |
Liquidity considerations | Notes |
---|---|
Expected expenses | Costs such as accountant and legal fees, insurance premiums or administrative costs associated with the investments. |
Liquidity check | Ensure that there is enough liquidity when required. |
Before deciding to go with an SMSF, you must understand the responsibilities that come with it.
You're responsible for:
Creating and maintaining an investment strategy tailored to your goals.
Considering factors like risk, diversification, and liquidity.
Making all SMSF-related decisions.
Additionally, your SMSF could be affected by personal changes like job loss, relationship breakdowns, or a member’s illness.
Be aware that moving from an industry or retail super fund might also result in losing insurance coverage.
Setting up an SMSF involves upfront expenses, which can vary depending on the complexity of the fund.
A more straightforward, single-member fund with fewer asset types may cost less to establish than a more complex one.
Ongoing costs include annual auditing, accounting, and compliance fees, which are fixed and independent of your fund’s value.
While some providers may offer lower setup costs, it's crucial to consider the long-term expenses, such as professional management fees, if you require additional help.
These costs can add up, making an SMSF more expensive over time than industry super funds, which typically charge fees as a percentage of your assets.
If you open an SMSF and later decide it’s not right for you, you can always close it down.
To do so, you will need to:
Ensure all tax and compliance obligations are covered, including lodging your final returns and settling any outstanding liabilities.
Notify the ATO and either roll any remaining super balances into a complying fund or pay them out to any members if they're eligible.
Following the proper steps is crucial in avoiding any issues, and having a financial planner guide you through the process can make it much smoother and less stressful.
If you’re looking for an alternative option for your super, Equip Super offers members a significant amount of control without the additional costs and risks that can come with an SMSF.
A financial planner can take the guesswork out of retirement. Book a time for an initial conversation and we can help you map out your retirement goals, supporting services, and next steps.
This initial appointment is obligation free and available to all fund members at no additional charge.
Book a time to talk to our advice team or call us on 1800 065 753
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An SMSF investment strategy should be reviewed regularly and updated when personal or financial circumstances change, or a significant event occurs. The ATO advises trustees to review their plan annually to ensure it remains relevant. Visit the ATO for more information.
No, there is no legal requirement for an SMSF investment strategy to be signed. However, trustees should ensure the strategy is adequately documented and regularly reviewed as part of their obligations.
The 5% SMSF rule states that in-house assets must not exceed 5% of your fund’s total assets. If your in-house assets exceed this limit, trustees must prepare and implement a plan to reduce the level to 5% or below, per ATO requirements. Visit the ATO for more information.
An SMSF requires significant financial knowledge, time, and commitment. You must be confident in making investment decisions and complying with all legal responsibilities. SMSFs give you complete control over your super investments but include responsibilities like managing audits, keeping records, and following strict superannuation laws.
An SMSF offers greater control but requires more effort, while a regular superannuation fund manages and invests your superannuation on your behalf.
Closing your SMSF may not be as hard as you think. Here are a few things that you will need to do:
Following the proper steps is crucial in avoiding any issues, and having a financial planner guide you through the process can make it much smoother and less stressful.
Yes, you can have both an SMSF and a regular superannuation account, and both have advantages. Some prefer the broad investment options available through a retail or industry super fund and their flexible and comprehensive insurance options. You can also receive Superannuation Guarantee (SG) contributions into a super fund rather than your SMSF, and diversifying between an SMSF and a super fund can provide flexibility and reduce any administrative burden.