As of June 30, 2010, $1.23 trillion was invested in superannuation funds or super, and $390.8 billion of that was invested in SMSFs or self-managed super funds, or roughly 31.8% of the superannuation funds. This makes SMSFs a large slice of the superannuation industry.
Individuals enjoy these 4 major advantages from SMSFs:
- Full control over investments
- Lower fees than industry and retail funds
- Better performance than industry and retail funds
- Investment flexibility
- More control and flexibility over investments
With SMSFs, members are able to choose where their retirement savings are invested and avail of options like listed invested companies or LIC, exchange traded funds or ETF, listed shares, bonds, and direct properties. This flexibility would allow members to have full control over their funds and manage them wisely. With a hands-on approach to managing the funds, members can adjust as the market changes. The real advantage here is not just your ability to choose, but your ability to make effective investment strategies. Take for example, within equities, having access to derivative based strategies like covered calls or hedging can be an effective way to make guaranteed returns while reducing the volatility. This is an important advantage for difficult or failing markets.
Lower fees and better tax control
In December 2009, a Commonwealth government report called A Statistical Summary of Self-Managed Superannuation Funds, which is based on ATO and APRA data, showed that SMSF members paid lower fees than average. This enabled SMSFs to perform better than any other super funds over the span of 2006, 2007, and 2008. SMSFs only pay 15% on taxable income, and the tax payable is reduced by credits on dividends generated by the fund. Tax control is probably one of the most attractive benefits of having an SMSF. Through strategic investments and internal structuring, tax can be reduced significantly and in rare cases, often eliminated with refunds paid by the ATO or Australian Taxation Office. This kind of flexibility is great for countering the tax liabilities of the fund because the fund only does one tax return, even if there are four members acting on the fund. There is even one strategy where current and future members can enjoy huge tax deductions on the death of a member.
Estate planning – funds go to your family after your death
Most people don’t know that SMSFs are also alternatives for estate planning, which have inherent benefits and the fact that your will does not have control your superannuation benefits. The goal here is to create a strategy that will benefit your family, like leaving tax-free or tax advantaged streams of income to your dependent beneficiaries when they receive a lump sum plus control over the lump sum received by child beneficiaries. SMSFs can also bring binding nominations that do not lapse, unlike commercial super funds that need to be updated constantly.
These benefits are enjoyed by a lot of Australians who are slowly converting their superannuation funds into SMSFs. You can inquire from offices like the ATO for more information about SMSFs or better yet inquire to Adam Jiwan.