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More and more people are turning to self-managed superannuation funds (SMSFs). We explore why SMSFs are becoming more popular and look at their benefits and risks.
What is an SMSF?
An SMSF is a private superannuation fund that’s regulated by the Australian Taxation Office. You manage it yourself and can have up to four members who are also responsible for the fund, including ensuring it’s compliant.
SMSFs are growing
The SMSF sector is growing in Australia. In April this year, Andrea Slattery, the chief executive of the Self Managed Superannuation Fund Association, predicted that more than 2 million Australians will have an SMSF within the next 15 years.
In fact, the self-managed super funds market makes up the biggest portion of the super fund industry in Australia today, accounting for $654 billion the $2.2 trillion super fund industry.
Why are they gaining popularity?
People are keen to have more control over their super, particularly considering the new caps coming into place in July 2017 on how much super you can hold in a tax-free account ($1.6 million) and how much you can contribute from after tax funds annually ($100,000).
This level of control is particularly appealing to women who typically retire with around half as much superannuation as men – who want to take charge of their superannuation, as well as self-employed individuals and those who own small businesses.
Benefits and risks
With an SMSF, you may be able to invest with more freedom, exert more control over your strategy and enjoy more flexibility regarding your retirement plans. Ultimately, you may end up saving more super for your retirement than if you went with other super funds.
But there’s also a lot to consider. For example, there are also complex legal requirements you will have to fulfil and there are penalties if you’re non-compliant.
Is it for you?
If you have the time and support from a financial adviser, and wish to have more control over your super, then joining the 1.1 million Australians with an SMSF may be your next step to a bright financial future. But keep in mind that SMSFs require a serious commitment and a financial adviser can help you determine if it’s the right choice for you.