For many Australians, superannuation forms their second largest asset after the family home – yet so many people have no idea what their superannuation balance is even worth – let alone how their super fund is performing.

The following table is from APRA’s Annual Superannuation Bulletin June 2010 and shows the rate of return for entities with more than four members. What this chart highlights, is for super funds other than SMSFs, the average rate of return over a 10-year period was just 3.3 per cent. Dismal to say the least!

Follow that by the GFC and even worse results and one can understand why the increase in numbers of SMSFs over the past few years has been so drastic.



With poor performance of many superannuation alternatives over the last five to 10 years the baby boomer generation is actively trying to gain more control over their nest egg as they are nearing retirement age instead of leaving it to the larger fund managers.

Increased marketing and awareness around super has also seen recent spikes of the younger generation establishing self-managed superannuation funds, known as SMSFs or DIY super funds.

In addition to obtaining greater control with an SMSF, there are a number of other key benefits that make the SMSF structure a very powerful investment tool.

Control

  • You choose your own investments which can include shares, property, options, bank bills, collectibles
  • You choose if and when to buy/sell
  • You can react far more swiftly to changes in investment markets as opposed to fund managers
  • You can be a more active investor
  • You are not investing for the average – you will have a more focussed portfolio individually managed
  • You can switch investment advisers, or seek the advice of many
  • You have accountability – so you’re likely to make the most out of your retirement savings.


Access to a greater range of investment opportunities

  • These include shares, property, managed funds, collectibles and a range of assets allowed under superannuation legislation
  • SMSF trustees have access to initial public offerings and corporate actions not available to other super vehicles
  • SMSF business owners have the ability to lease their premises (classed as business real property) from their self managed superannuation fund.


Relatively Low Cost

  • Many providers offering free establishment
  • Annual fees from $700 that can be split across up to four members
  • Average SMSF fee $2500.

Transferring in Private Investments

SMSFs have the ability to accept “in specie” contributions which allows a member not only to contribute cash but also other investments they may hold personally such as listed securities and “business real property”. 

This potentially allows a member to transfer income generating assets from an environment where the income is potentially taxed at up to 46.5 per cent to one of just 15 per cent, and tax exempt once the fund is paying a pension.

Pension Planning

For individuals that are approaching retirement, the SMSF structure provides the easiest transition from accumulation into flexible income streams. As with many super products, there is no requirement to sell down assets or convert to a different product when commencing a pension. 

Borrowing

The ability to borrow funds to acquire a property was introduced a number of years ago. This has enabled greater opportunity for SMSF trustees to increase their investment in their SMSF. 

Summary

In closing, when you ask, 'Why SMSF?' I say, 'Because ultimately, nobody is as interested in your retirement savings as you!'

Olivia Long

The power shift in SMSFs - trustees becoming younger and savvier