Strategy Tailored For You
Industry super fund VS Self managed super fund - Which one is right for YOU?
Our Super Fund Info Chart (see below) provides a bird’s eye view of some of the pros and cons of each type of super fund. We don’t expect it will ansewr all your questions, but we’re hoping it will give you a good starting point for future discussions with your financial planner.
Naturally, there’s a lot more to planning your future financial security than we could possibly cram into one tiny table!
That’s why we’re also offering you a complementary appointment where you can meet a professional and discuss your options in greater detail (with absolutely NO obligation or pressure to go further than that, of course).
You’ll get:
- A really good insight into the range of services available to you,
- A roadmap showing some scenarios for people of your age,
- An obligation-free chance to see whether or not a financial planner IS for you, and
- A sneak peak at some strategies and possiblities you could implement today to get you where you want to be in the future.
If you’d like to feel more confident than ever about your financial future, simply give us a call on 6642 1599 to arrange your complementary appointment with our financial planner.
| Topic | Industry Super Funds | Self Managed Super Funds | ||
|---|---|---|---|---|
| Pros | Cons | Pros | Cons | |
| Control | ‘Set and forget’ – Not much effort required. | Limited flexibility. Investment decisions are largely controlled by the fund manager who is looking after the money | Gives you control over asset choices and asset allocations. | Some due diligence and effort is required. Compliance risk sits with the trustee/members. |
| Flexibility | N/A | Limited flexibility and ability to tailor a solution to meet your individual needs. | Flexible | Need to work closely with your financial planner and other professionals. |
| Insurance | Some built-in insurance coverage (often not available to those with existing conditions) | Cover under group insurance arrangements tends to be through a very basic policy, which doesn’t contain many bells and whistles. | Even if you’re “uninsurable” due to existing health conditions, an SMSF allows you to set up a reserve for insurance. Insurance policies tend to offer more benefits (e.g. longer benefit period under salary continuance insurance). | Insurance policies are generally non-group policies and therefore will require individual underwriting. For uninsurable members a reserve needs to be established usually using investment earnings. |
| Estate planning | Can nominate beneficiaries. | Not all indistry funds offer binding nominations so death benefit payments will be paid at the discretion of the fund’s trustees. | VERY specific estate planning is available. | You need to know your trust deed. |
| Capital gains tax | Significant tax benefits, as capital gains are assessed at a maximum of 15 per cent when in accumulation phase. If assets are held for more than 12 months, then a capital gains tax discount of one third will apply. There is no capital gains tax in pension phase. | Upon switching to a pension phase, capital gains tax may be payable, as the investments need to be sold in order to purchase the investments held within the pension phase product. | Significant tax benefits, as capital gains are assessed at a maximum of 15 per cent when in accumulation phase. If assets are held for more than 12 months, then a capital gains tax discount of one third will apply. There is no capital gains tax in pension phase, furthermore investments do no need to be sold to commence a pension, avoiding any capital gains tax at this stage. | N/A |
| Anti-detriment payments | Subject to the super fund’s trust deed, anti-detriment payments may be paid in respect of a deceased member’s benefit. | There is no obligation for the fund to pay anti-detriment payments; therefore some funds may not offer the payment. | Subject to the super fund’s trust deed, anti-detriment payments may be paid in respect of a deceased member’s benefit. | There is a practical issue with funding the anti-detriment benefit from a self managed super fund, as the fund will generally have to have a reserving strategy in place to enable it to payout the anti-detriment benefit. |
| Reversionary options | Subject to the super fund’s trust deed, reversionary pensioners may be nominated. Nominating a reversionary pensioner means that a deceased member’s super interest can remain in the super environment and the beneficiary generally the spouse of the member, can receive a death benefit income stream. | Practically most industry funds do not offer reversionary nominations, therefore death benefits will need to be paid out as lump-sum benefits. Although if paid to a spouse, the death benefit will be tax-free, it may affect their Centrelink entitlements, if applicable. | Subject to the super fund’s trust deed, reversionary pensionsers may be nominated. Nominating a reversionary pensioner means that a deceased member’s super interest can remain in the super environment and the beneficiary generally the spouse of the member, can receive a death benefit income stream. | Paying a death benefit income stream may result in tax on pension payments for the beneficiary, as generally if the benefit was paid as a lump-sum death benefit to the member’s spouse, the payment would be tax-free. |
| True investment performance | N/A | True investment performance can be unclear, as returns in bad years are boosted from reserves, and returns in good years are not all passed on to the members. | You are aware of the true returns at all times. | N/A |
| Investment options | Members can select investment options based on their risk profile and there is less responsibility to research the underlying investments. | Investment choices are limited compared with self managed super funds. Members can’t invest directly in property and (with most industry funds) direct shares. | Virtually unlimited investment choices. The fund can take advantage of borrowing, which could be used to secure an investment property within the portfolio. | The trustee/member needs to conduct much more of their own research, however managed funds can be used and advice can be sought from a financial planner. |
| Portability | Many industry funds are portable. | Some member’s may not be able to roll their benefit to another fund. For example, certain employees are required by their applicable industry award/agreement to be members of a specific fund while they continue to work in a particular industry. | Completely portable. | N/A |
| Fees | They have lower fees than retail super funds. | Your fees can be used to pay for advertising and promotion of the fund itself. | The fees of the fund are specific to the items you need: Financial planning/investment advice, accounting and, possibly, legal advice. | The ATO has recommended $200,000 as a guideline for being the minimum balance required before a SMSF becomes cost effective. |
| Administration efficiency | Industry funds will handle all the administration requirements. | May be slow due to the funds’ policies and procedures and the greater level of members. | Ability to choose who administers the fund. The Cooper Review (a Government funded review) has drafted a significant number of changes to SMSF’s. These include suggestions on the improvement of the quality of the accounting, reporting and administration of these funds. |
Cost in administering the fund through use of accountants or SMSF service providers. |
| Ability to transfer existing, personally held share holdings and commercial property into super | N/A | Inability to hold direct investments such as property or shares. | Existing individual share holdings or commercial property can be transferred into the fund, alleviating income tax for the individual. | There are strict rules regarding what personally owned assets can be transferred into a SMSF. In order to transfer property owned outside superannuation into the SMSF, the property must be business real property and the shares must be listed on the stock exchange. |
| Funding pension payments | May offer choice of which investment option to be redeemed in order to fund pension payments. | No cash account and therefore will require the sell down of assets to fund pension payments. | Can fund payments from the SMSF cash account, which can ensure assets do not need to be sold in order to fund the pension payments. If the sale of assets is required, complete control on which assets should be sold, allowing, particular or larger assets to be maintained until a more appropriate time to dispose of them. | Assets must be sold if no cash is available to allow for pension payments. |
Copyright – PlanBiz Financial Services 2011
This article provides general information only. You need to consider with your financial planner your investment objectives, financial situation and your particular needs prior to making an investment decision.