Why are more people choosing self-managed super funds?
Over the past two decades, more Australians have opted for Self Managed Super Funds (SMFS).
SMSFs are Growing
Data released by the Australian Prudential Regulation Authority (APRA) and the Australian Tax Office (ATO) show that SMSFs now make up the biggest share of the superannuation industry, comprising of 32.4% (an increase from 12% in 1998) and represent 1.1 million Australians.
Source: APRA / ATO Statistics December 2016 (issued 21 February 2017)
The 32.4% SMSF share of the superannuation industry reflects:
SMSF Assets Total: $653.8b – a $50b growth in one year.
Number of SMSFs: 585,260 – a 23,000 increase in one year
SMSF Benefits
Managing your own super fund requires a lot of work. From setting up your SMSF to lodging your final return when your SMSF winds up, it involves a good financial literacy, understanding of legal responsibilities, as well as the time and commitment to complete all the administrative tasks required. Although the work and responsibilities does seem like a lot, people continue to invest their retirement savings in to SMSFs. Some of the benefits are:
Control
The primary reason why people choose or migrate their retirement funds into a SMSF is because they are either disappointed with the performance of their Industry Superfund or believe they can do a better job of investing within an SMSF. An SMSF has flexibility in how it can invest, for instance, it is possible to purchase a property.
Cost Efficiency
An SMSF can be cost efficient – according to the Australian Securities & Investments Commission (ASIC) ideally, am SMSF should have at least $200k, this is not the law. When thinking about establishing an SMSF you should remember that there are accounting/administration costs, an audit needs to be conducted annually and there are also lodgement costs to consider, these can add up. You should discuss these costs with your financial planner and accountant. With a maximum of four members in an SMSF, costs can be reduced proportionately which can reduce the average annual fee per member.
Motivations for SMSFs
It’s easy to assume that people who have invested into SMSF have done so purely for the above benefits, but research has delved deeper into the motivations and attitudes towards SMSFs. Research led by Professor Susan Thorp at the Centre for International Finance and Regulation (CIFR) surveyed 1000 participants. Some of the key findings were:
- 60 per cent of people setting up SMSFs said the idea came from an accountant or financial advisor.
- Less than 20 per cent said it was their own idea to migrate to an SMSF
- SMSF members strongly trusted finance professionals and believed that they were not motivated by their own interests or influenced by commissions in contrast to members of large super funds.
Despite the benefits, investing in an SMSF should be considered carefully – the decision to switch to an SMSF given the financial literacy, responsibilities and commitment involved, investors should employ the services of financial professionals to yield the best results possible from their SMSF.
As SMSF auditing specialists, we provide our clients with the best auditing knowledge and experience both internally within our business structure and further with direct access to senior technical officers in the ATO. We ensure that we provide a quality service. In the end, you are still managing your SMSF and the ultimate investment decision is yours – you just employ the professionals.