Pros-cons-SMSF

What are the positives and negatives of a SMSF?

Starting a SMSF is an attractive alternative to managing your retirement fund, especially if you are dissatisfied the returns from your current Super Fund. SMSF’s are, however, not the ideal solution for everyone.

Here’s some benefits and disadvantages to consider:

Benefits of a SMSF:

  • SMSFs provide control over your retirement investments.
  • The transparency of SMSFs allows trustees to align their personal goals with investment decisions.
  • More investment options are available for SMSFs than any other super fund.
  • SMSFs can be cost effective, depending on the amount available for investment and whether you commission professional advice.
  • Income in complying SMSFs is generally taxed at a concessional rate of 15% during the accumulation phase. No tax is payable in the pension phase.
  • Members can respond quickly to changes in market conditions, super rules and personal circumstances.
  • SMSFs offer great flexibility. Multiple members can run a combination of accumulation and pension accounts.
  • Members decide when to buy or sell investments involving capital gains tax.
  • SMSFs are allowed to raise debt in order to invest in property.
  • If you are an experienced investor, you can benefit financially from your expertise in your retirement.

Disadvantages of a SMSF:

  • It is not cost effective to be part of a SMSF if you have less than AU$200,000-250,000 to invest. It becomes an attractive option, cost wise, if you have more than AU$1million to invest, otherwise fees will deplete much of your returns.
  • You are required to understand the rules applicable to the establishment and running of your SMSF.
  • You need to be an experienced investor with knowledge and understanding of investments strategies or work with a trusted wealth advisor.
  • There is no guarantee that your Fund will outperform other superannuation funds.
  • You must have time available to manage your SMSF.
  • The ultimate responsibility to fulfil legal obligations and manage the Fund according to the Super Rules falls on the trustees, even if professionals are commissioned to assist.
  • You must be able to roll over or pay your mandatory employer superannuation contributions into the new fund.
  • Non-compliant SMSFs are taxed at the highest marginal tax rate.