The hidden benefits of SMSFs

There’s a lot more to SMSFs than flexibility and control. Three SMSF experts weigh in on some of the overlooked benefits of using an SMSF to build retirement savings.

The benefits of choosing an SMSF over an APRA regulated super fund are well-documented. Investors enjoy having control over how their super is invested, as well as the flexibility to choose investments that suit their risk profile and tap into a broader scope of investment opportunities. However, there are many other benefits that may make an SMSF an appealing option – especially to younger investors who are focusing on building their wealth.

Ease of execution

When comparing SMSFs to APRA regulated super funds, many investors seem to misconstrue what’s possible with what’s practical.

Meg Heffron, Managing Director of Heffron, says as an industry, we undersell the strategic difference of SMSFs. The market has historically focused on two strategies that are unique to SMSFs – one is gearing and the other is the double tax deduction strategy. While these strategies are useful, Meg believes one of the massive practical benefits of SMSFs is how easy it is to execute mainstream super strategies because of pooled savings.

“Mainstream strategies are possible in any fund, but they’re much easier in an SMSF,” Meg said. “For example, if you want to split concessional contributions with your spouse, it’s a form and that’s it. You don’t have to move money to another super fund or set up another account. You’re both there already.”

She adds that pooled savings in SMSFs can also make pensions far easier to manage.

“In a conventional retail super fund, contributions and pensions are run separately. The money coming in from contributions is being invested separately, and you need the income from the pension account to generate enough cash flow to pay the pension. But in an SMSF, it all happens in the one pool. Contributions coming in can fund the pension payments that are going back out.”

Transparency and support

Advances in SMSF technology have made it easy for investors to gain a higher level of transparency than ever before.

Yvonne Chu, Head of Technical Services at Australian Unity Wealth, says that SMSF investors appreciate being able to scrutinise their super at a higher level than they’re able to with other environments.

“SMSFs cater to investors who like transparency and being able to call the shots,” Yvonne said. “They like to see the exact taxable income of the fund, the exact deductions, the exact net tax rate. They can’t get that information with other types of funds.”

Yvonne stresses that some of the perceived drawbacks of having an SMSF – namely the complexity and expense – no longer hold true.

“While there are more responsibilities for SMSF trustees, there are also many ways to source information and receive guidance. There are advisers, accountants, SMSF administrators, technical services. And with the sophistication of SMSF technology nowadays, it’s really quite straightforward. We need to move away from the stigma that unless you have a PhD, millions of dollars and years of experience, you shouldn’t have an SMSF. That’s certainly not the case.”

Creating a multi-generational fund

With SMSF regulations now allowing up to six members in a fund, there’s an increase in Australians creating multi-generational SMSFs to provide for their families.

Jo Hurley, General Manager of Growth at Class, has had an SMSF since she was in her early twenties. She originally started her SMSF to help her parents find a clearer path to retirement.

She said, “They were in their 50s and lacking in confidence about their ability to retire. It was causing them a lot of stress and worry. We decided to start a fund together and we learned a lot through that process about different strategies and approaches. It helped me talk them through their worries.”

One of the other areas where SMSFs have an advantage over retail funds is what happens during an insurance claim. Jo says having an SMSF that’s set up as a multi-generational fund can eliminate a lot of the stress that comes from having to deal with super funds after making a death claim.

“A very important benefit of having an SMSF is the ease of sorting out benefit payments after a death claim and the impact that has on the family experience,” Jo said. “You have control over the decisions about how the claim is paid out, and the wills and estate planning are already set up alongside the SMSF. We hear so much feedback about all the arguments and delays that can happen with retail funds. I wouldn’t wish that experience on my worst enemy.”

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