Industry Versus Self Managed Superannuation Funds
When deciding whether to choose between an industry superannuation fund versus a self-managed super fund (SMSF) it is important to consider the pros and cons of each. As the slick advertising campaign rightfully suggests, industry funds are run solely to benefit their members but what are the advantages of operating a self-managed super fund? Questions like these are grist for the mill for industry wealth creation experts, David Loughnan financial planner who have two branches located in Brisbane and Sunshine Coast.
Advantages of industry super funds:
- Less Research: The ability to select investment strategies without undertaking exhaustive research
- Risk: Match your investment type against your risk profile and let your fund manager do the hard work for you
- Less admin: The manager will take care of all administrative requirements
- Set and forget: the day to day operation of your superannuation investment is overseen by a fund manager, meaning investment decisions are not required
- Anti-detriment: Payments can be made from a deceased person’s benefit
- Capital Gains Tax: CGT is only taxed at a concessionary rate of 15%. Should assets be held for a period greater than one year, CGT is discounted by 30%. When the fund reaches pension phase it is CGT exclusive.
Advantages of self-managed superannuation funds:
- Asset distribution: As a member of a self-managed super fund you are granted significant control over the distribution of asset classes that you will invest in.
- Combining family super: The ability to combine superannuation entitlements from up to 4 family members and thereby boost your investment power
- Investment options: The ability to lend money in order to purchase asset classes such as property, equities or other investments. Legislative changes that came into effect in 2007 paved the way for self-managed superannuation funds to invest in property. Given the ability to lend to a SMSF, property investment is now extremely popular.
- Tax: Like an industry fund, a SMSF provides extensive taxation benefits. CGT is only taxed at a concessionary rate of 15%. Should assets be held for a period greater than one year, CGT is discounted by 30%.
- Real Value: Unlike an industry fund, SMSF provide an accurate representation for the exact value of all of your investments at any given point in time.
- Flexibility: Leaving investment decisions to a fund manager provides very little flexibility with respect to how your money is allocated. This also deprives members of the ability to shift investment direction quickly should life circumstances change.
- Estate Planning: The payment of death benefits may not be binding for some industry superannuation funds, but rather this can be at the discretion of the fund manager
- Anti-detriment: Funds are generally not required to make anti-detriment payments
- Reversionary options: not available with many funds, meaning that death payments take the form of a lump sum with the potential to affect Centrelink or other benefits.
- Performance: In spite of regular communication it remains very difficult to gain a handle on the true investment performance of an industry super fund.
Disadvantages of SMSF
- Costs: Higher compliance costs (auditing fees, etc) means that a minimum investment via a SMSF should generally exceed $200,000.
- Flexibility and Control: Requires a strong working relationship with your financial advisor and accountant given that members bear the compliance risk.
- Investment: Requires greater research and financial literacy than industry funds. Financial planning advice is also necessary.