As at 30 June 2021 there were 1.1 million SMSF members – up by 43,000 on the previous year. This is a very real and growing sector. And while there are those individuals who wish to manage their own investments, buy properties etc, there are many other reasons that are lesser understood, as to why an SMSF is established.
Firstly the name “Self-Managed” is a misnomer. Self managed is the case for a small percentage of the market, while for a larger percentage of users, they outsource the day to day management, the investment direction and the accounting and financial returns. In some respects, a better term would be “Private Superannuation “or “The Family Fund”.
So what are the reasons why people create these SMSFs?
One of the reasons is cost.
The ability to pool up to six member’s account balances together to access better buying power. Generally, we see spouses combining their funds to create one retirement account. The inflection point where this comes into play is when you have two individuals with superannuation balances of $400,000 each making maximum concessional contributions into superannuation of $27,500 each year. At that point, the costs of SMSF generally stack up with most comparable Industry and Retail superannuation funds. The reason for this is that most industry and retail superannuation funds charge on a percentage basis, whereas SMSF administration is done on a flat fee regardless of the size of your member balance.
The second reason is flexibility.
This applies particularly when you are entering pension phase ie looking to pay out an income stream from your super. Given the changes and the transitional nature of work today, people may cease and recommence work frequently.
The SMSF offers the ultimate structure in this regard.
The SMSF has one cash account for all members which can receive contributions while paying out pensions (income streams). This provides both simplicity and clarity.
Contrast this with industry and retail superannuation funds, where you physically need to have an accumulation account to receive super contributions and a separate pension fund to pay out income streams. If you have two members you have a minimum of 4 separate accounts. If you wish to convert some of your accumulation account into the pension account, you then need to set up a separate pension account – now we are at 6 accounts and the complexity goes upwards from there!
The third reason is the ability to plan your Estate.
It doesn’t mean that Estate Planning can’t occur with Industry or Retails funds. It can. But the advanced options usually only exist in an SMSF structure.
In Industry and Retail superannuation your nomination goes before a panel of “faceless” Trustees who rule on whether your nomination is legal and binding.
Also nominations only hold true for three years with Retail and Industry funds and have to be resubmitted every three years.
With SMSF you can put in place a “Lifetime binding nomination”.
And in SMSF the nomination is reviewed and approved by the remaining Trustee which in most cases is the remaining spouse. This can minimise complexity and expedite the timeliness of benefit pay out when you need it most. Hopefully there are some ideas there to get you thinking.
If you’re interested in knowing more about this option, feel free to contact us directly on 07 3391 1624 or www.futuregen.solutions