SMSF vs Industry Fund : Which is the best option for your superannuation?
When it comes to superannuation, things can get a little tricky sometimes. Which fund should you go with, do you change funds, how do you change funds, should you start a SMSF? All these questions, and many more, can be hard to answer and even harder to get a solid response too.
That is why we have collated a comparison between self-managed super funds and industry funds, to assist you in making an informed decision as to the best option to suit your needs. Always speak to a qualified professional before making any decisions and give Bottom Line Control a call on (07) 5471 7077 if you require further assistance.
What is an SMSF or self-managed super fund?
A self-managed super fund, or SMSF, is a private superannuation fund that your superannuation gets paid into from your employer and you manage personally.
What is an industry fund?
An industry fund is generally an accumulation fund, ranging from low to medium cost. They are non-for-profit funds, resulting in profits being put back into the fund and most bigger industry funds will allow anyone to join. Some smaller funds however many have stricter entrance requirements e.g. only work in the health sector.
Advantages and disadvantages
There are a range of benefits and deficits when it comes to both SMSFs and industry funds, depending on your superannuation balance and what you are wanting to achieve (among other factors).
Self managed super funds
- Range of investment options.
- Benefits from concessional tax rates.
- Flexibility when it comes to accumulation and pension accounts.
- Consolidation of superannuation assets.
- Flexibility when it comes to estate planning.
- Value adding to your super through property.
- It takes over 100 hours a year to run SMSF (around 8.4 hours a month).
- You must remain up-to-date with all superannuation law changes yourself.
- You must meet all your reporting obligations including financial statements, tax returns and independent audits.
- You must organise yourself any annual valuations of assets if and/or when required.
- It costs around $13,900 a year to run a SMSF.
- Residential properties can not be acquired through SMSFs with the intention to be lived in nor rented by a member, their family or their associates.
Remember, you could face fines or end up in court if assets are misused, as your SMSF and its assets must be used only to provide benefits to members for their retirement. Fines and court appearances can result from:
- Take money out of the SMSF before you are entitled to and spend it e.g. on a car or home loan repayments.
- Use or access any collectables the SMSF invests in (e.g. art or wine).
Remember, SMSFs with balances below $500,000 have, on average, lower returns after expenses and tax compared to industry and retail super funds. On the other hand, SMSFs with balances above $500,000 have returns that are competitive with industry and retail super funds after expenses and tax. Therefore, if your balance is below $500,000 and an adviser has suggested that a SMSF is the most suitable option for you, ask why this is the case. - ASIC
- Low fees.
- All profits are put back into the fund for the members to benefit from.
- Usually open to everyone.
- Run by industry associations and members.
- Not-for-profit funds.
- Compliance risk is borne by the professional licensed trustee.
- Limited number of investment options.
- Less individual freedom when it comes to choosing specific investments for yourself.
What are the differences between SMSFs and Industry Funds?
There are a few differences between SMSFs and industry funds including:
- A SMSF can have a maximum of 4 (four) members, whereas industry funds generally don't have a limit.
- Compliance risk is taken on by SMSF members, whereas compliance risk is borne by the professional licensed trustee for industry funds.
- SMSF members make all investment decisions and implement any investment strategy that their fund has in place, whereas industry funds generally only allow its members to have basic control over the mix and risk level of super investments (ie. you can't choose specific investments).
- Insurance is a choice and can be purchased for SMSF members, but it tends to be higher in cost than other super funds. For industry funds, insurance is usually offered to cover to members that costs less, as large funds can get discounted premiums.
- SMSFs are regulated by the ATO, whereas industry funds are regulated by the Australian Prudential Regulation Authority (APRA).
- SMSF members deal with the ATO directly, whereas industry fund members generally don't deal with APRA directly.
- When it comes to disputes, SMSFs must use a dispute resolution process or the courts to resolve an issue, whereas industry fund members have access to the Australian Financial Complaints Authority (AFCA).
- Industry fund members may be eligble for statutory compensation in relation to complaints and/or disputes, however SMSF members do not have any government compensation scheme available to them.
- If there is fraudulent conduct or theft, no government financial assistance is available to SMSFs however members may have legal options under Corporations Law. For industry fund members, members may be eligible for government financial assistance in the event of fraud or theft.
Is an SMSF or an Industry Fund the best option for me?
This question is not an easy one to answer, as there isn't a 'one size fits all' super fund to suit everyone. That is why it is very important to speak to an appropriately qualified adviser regarding your circumstances and they will be able to assist in this process and discuss your exact needs. Note however, on average SMSFs will not perform as well as professionally managed super funds, also known as an 'APRA-regulated fund' (APRA is the Australian Prudential Regulation Authority).
If you would like some further information regarding self managed super funds, industry funds and the best option to suit your needs, give Bottom Line Control Sunshine Coast accountants a call on (07) 5471 7077 and we can discuss.
ASIC (Self-managed super funds: Are they for you?): https://download.asic.gov.au/media/5301438/self-managed-superannuation-funds-are-they-for-you.pdf
Moneysmart.gov.au (Types of super funds): https://moneysmart.gov.au/how-super-works/types-of-super-funds
Moneysmart.gov.au (Self-managed super funds (SMSF)): https://moneysmart.gov.au/how-super-works/self-managed-super-funds-smsf
Australian Government - ATO (Compare SMSFs with other super funds): https://www.ato.gov.au/Super/Self-managed-super-funds/Thinking-about-self-managed-super/Compare-SMSFs-with-other-super-funds/
This web page and its contents are general in nature. You should always speak to a professional regarding your exact circumstances before making any decision in relation to your superannuation, as the information contained on this page may not be suited to your needs.