With the establishment and ongoing costs of self managed superannuation funds (SMSFs) falling, technology options streamlining administration, and the superannuation member population broadening, the growth and popularity of SMSFs is unlikely to abate any time soon, says Andrew Yee, director, superannuation, with HLB Mann Judd Sydney.
“While it is still important to have a decent sized minimum balance to set up a SMSF, this minimum is becoming lower as the costs of having your own fund are decreasing due to increased use of technology and an increase in outsourcing,” Mr Yee says.
“While at least $300,000 used to be quoted as a minimum balance for an SMSF, this has now reduced to, say, $200,000 or even less. This has led to a younger cohort setting up a SMSF at an earlier age than their predecessors.”
‘Wealth builders’ looking to build up retirement savings are a good example, he says.
“People in their mid 30s and early 40s are focused on paying down their mortgage and building their savings, and this is the age when they also begin to consider their superannuation and other wealth building options.
“This appears to be happening now with the latest ATO data pointing towards younger SMSF members as well as more women being involved with SMSFs.
“Equally, the quality of advice to SMSF trustees has improved as advisers become specialists in this area and their knowledge about SMSFs increases,” Mr Yee says.
Control and cost considerations remain the predominant reasons why people are setting up their own SMSFs.
“Many are drawn to SMSFs because of the control and flexibility features they offer. Compared with non-SMSFs, the investment options of SMSFs can be broader and less costly. In addition, investments can be made both directly and indirectly.
“Many investors have turned away from retail funds and industry funds because of dissatisfaction over performance, costs, or lack of transparency. For instance, they may not want a portion of their benefits to be set aside for a risk reserve as currently required by APRA regulated funds. Or they may not want their benefits being used to pay for sporting sponsorships that may promote a fund to potential members, but have no real benefit or relationship with an existing member’s retirement.”
Mr Yee said that SMSFs hold a number of advantages over other superannuation funds. These include:
Establishment of a family retirement savings vehicle
“The amalgamation of family member super balances can lead to the establishment of an SMSF with a healthy balance. That is why an SMSF is often called a family super fund because Mum and Dad and perhaps up to two kids can pool their super savings under the one structure,” Mr Yee says.
A SMSF can be a good vehicle for family tax and estate planning purposes
“Tax deductible family contributions can be made to the fund and SMSFs pay only 15% tax on income.
“Also when the fund pays a pension to one of its members, the income of the fund (relating to the pension capital) is tax free and the pension to the member is tax free in their hands if they are over age 60,” Mr Yee says.
“These tax features are not unique to SMSFs, but an SMSF is much more flexible in taking advantage of these tax concessions. For example an SMSF member can have an accumulation account as well as a pension account. Also SMSF assets can be segregated and divided up between member accounts, or between members.
“Additionally, benefits can be left to accumulate in the fund without a requirement to be drawn out, except when the member dies, when it can then be paid to the spouse as a pension. Therefore the fund can continue after the death of a member.”
Personally held shares or commercial property can be transferred to a SMSF
“This cannot be done with a non-SMSF. Quite often this is a catalyst in setting up an SMSF.”
SMSFs can borrow to acquire an asset
“Although setting up an SMSF just to borrow to acquire a residential property may not be the best investment or tax planning strategy, there are occasions where borrowing with super makes sense.”
A SMSF can complement family business structures, provided it is cost effective
“Business owners wanting to own their business property can do so via a SMSF. As well as making contributions to the SMSF, the business grows the fund by making rental payments. There could also be an opportunity for business owners who sell their businesses, to sell their business property to an SMSF and receive CGT concessions,” Mr Yee says.
HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and a member of the HLB Mann Judd Australasian Association.
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