SMSF/DIY SUPER
Planning for a secure financial future is important, and now more than ever Superannuation is one of the most tax effective ways of saving for retirement.
Are you thinking of setting up your own superannuation fund?
Good Reasons to Start a SMSF
Self managed superannuation funds, or SMSFs as they are commonly known, have for some time now been the growth sector of the superannuation market. Nearly 380,000 funds, over 620,000 members and close to $280 billion in assets confirm the continuing popularity of self managed super.
So, what is it that makes self managed funds so attractive? Below are some very good reasons to consider why you would establish a SMSF.
Understand that SMSFs are not appropriate for everyone. Speak with us about whether a SMSF is the right choice for you.
Take care of the whole family
A SMSF potentially enables the whole family to be members of the same fund. Generally that is difficult at best with other types of superannuation funds.
By having family members and their super assets in the one flexible superannuation fund that is purpose built for you and your family, it makes matters so much easier when considering your own needs and key matters such as estate planning.
Control and flexibility
Almost every aspect of a SMSF offers the opportunity for as much control and flexibility as you want or need. This control begins with the funds all-important Trust Deed.
Glenister & Co has the latest, up to date SMSF Trust Deed drafted specifically for the Simpler Super Legislation that enables you to apply the latest and sophisticated SMSF strategies for your Fund.
As trustee of your own fund, you have maximum flexibility in relation to fund investments, tax strategies and estate planning.
Additionally, if you desire, you can utilise the services of specialist companies that do administration and accounting specifically for self managed funds. This can leave you free to concentrate on specifically tailoring your own investment strategy in conjunction with your financial planner.
Cost effective
While cost savings will generally not be a key driver of the decision to start a SMSF, there are potential savings compared to public offer or industry superannuation funds. The extent of cost savings depends on the type of investments and size of capital in the fund.
The cost effectiveness of a SMSF will usually improve as the fund assets increase. As the fund balance increases, a greater proportion of assets may be directed to wholesale funds and direct assets such as shares and property for example.
Broad investment choice including borrowing
SMSFs offer almost limitless investment choice. Compare that with your ordinary superannuation fund where investment choice is often limited to capital stable, balanced and growth options.
Compared to your ordinary superannuation fund, a self managed fund allows you to invest in direct equities and property, a variety of overseas assets and alternative assets that might even include appropriate levels of artwork or antiques.
Superannuation law does not prescribe the type of assets that a superannuation fund can and cant invest in. Rather, it sets an investment framework that trustees must adhere to in relation to the investment of fund assets. Importantly, however, all investments need to be made in accordance with the funds documented investment strategy. With the introduction of changes to the law in September 2007 SMSFs can now borrow to further broaden their investment options.
The benefits of Transition to Retirement
A SMSF can pay a pension that is called a Transition to Retirement “TTR” Income Stream.
A Transition to Retirement Income Stream Income Stream is available to anyone aged 55 64.
The pension pays between an annual minimum pension of 4% of account balance and a maximum pension of 10% of account balance.
No commutations lump sum withdrawals are available from the TRANSITION TO RETIREMENT INCOME STREAM capital.
Once the pension recipient meets another condition of release for example, obtaining age 65 the 10% cap is removed and full commutations are available.
A person aged 60 or over in receipt of a Transition to Retirement Income Stream receives the income stream income tax free.
A significant advantage of a Transition to Retirement Income Stream is that the capital underlying the pension moves into tax-free phase.
Taxation efficiency
It is the taxation efficiency of a SMSF that attract many, along with the ability to spread those benefits across family members within the fund. Some of the taxation benefits include:
The ability to use imputation credits from shares paying fully franked dividends to substantially reduce the tax liability of the fund. Importantly, excess imputation credits can be refunded to the fund a key point for funds with pension members.
A maximum of 10% tax on capital gains earned in the accumulation phase and no tax on capital gains made in the pension phase.
The ability to structure very tax-effective estate planning strategies that can include the payment of pensions upon death to beneficiaries including children.
A long term retirement structure
A SMSF has the added advantage that it can also pay a pension from the same fund. Many ordinary superannuation funds do not allow income streams to be paid from the same fund instead they need to transfer out to another fund that allows a pension to be paid.
The ability to operate the same self managed fund through accumulation and into retirement and beyond really does make self managed funds an attractive long-term financial planning structure.
Estate planning opportunities
For specifically tailored estate planning strategies, there are no superannuation funds that can match the flexibility that is possible within a self managed fund. As already mentioned, estate planning is a key component of family needs and self managed funds allow these needs to be specifically addressed.
Whether it be the ability to pay a tax-free lump sum to a spouse, or a tax effective pensions to children, SMSFs can provide the tailored flexibility that generally cannot be replicated in other superannuation vehicles.
Less onerous reporting requirements
SMSFs are subject to less onerous reporting obligations, such as member reporting and annual return deadlines.
Due to the closely held and self-assessing nature of these funds, which are regulated by the Australian Tax Office, they are allowed various concessions through legislation designed specifically for self managed funds.
You might even enjoy managing your own SMSF
It is apparent that more and more people actually enjoy being in control as a trustee of their own SMSF. Whether you are still working and accumulating super for retirement or you have retired, you have the option of getting as involved as you please.
Some people enjoy getting involved with the day to day administration of the fund and certainly, for some, it can provide an enjoyable extra hobby during their retirement years. The beauty is that the choice is yours.
To find out if a self managed superannuation fund is the right option for you, contact us today.