SMSF vs traditional super – what’s right for you?
Self-managed super funds are growing in popularity. But does that mean it's right for your situation?
Sponsored by Aware Super. Grab your financial action plan for your age from Aware Super to boost your money smarts and get on top of your super.
Self-managed super funds (SMSF) are having a bit of a moment right now.
Many people see them as an opportunity for increased financial freedom in retirement, while others are more cautious about the increased level of attention they require.
With this in mind, we're comparing traditional super funds with SMSFs and looking at the benefits and challenges they can both offer.
Costs
Both traditional funds and SMSFs have fees attached.
Generally speaking, it's a smart idea to pay less fees on your super where possible. This can help avoid fees chipping away at your long-term savings.
However, it can be a bit more nuanced when it comes to a SMSF.
Although they're technically 'self-managed', it's not unusual for SMSF members to work with external advisors and auditors, which could lead to increased costs.
Some people might see this as the price of investment for a larger overall balance. But the fees of an SMSF are a case-by-case situation.
Investment opportunities
Traditional super accounts give you some, but not much, control over the investments in your portfolio. Your investments are generally pre-made portfolios that are designed to help you reach certain goals, like steady growth with minimal risk.
You're not usually selecting individual assets, though you can generally get a broad idea of what sort of assets your fund is investing your super into.
Depending on your super provider, you could adjust some of these investment groups. And bigger super funds might offer large-scale investment opportunities that might not really be available to SMSFs.
In comparison, one of the big attractions of having an SMSF is that you could access a wider variety of investment opportunities and have more control over what your fund is invested in.
However, it's definitely not a free-for-all.
An SMSF must have an investment strategy drawn up, which is also regularly reviewed to see if it's performing in line with the expectations.
You also need to show that the assets your SMSF is investing into are clearly distinct from your own personal assets, and that you're making good-faith efforts to avoid conflicts of interest.
Tax
For those with traditional super funds, tax is generally a pretty straightforward process.
Tax might be applied to your contributions and investment earnings within a traditional super fund, but you don't need to manage those tax obligations at all.
You can find out more about super and tax right here from Aware Super.
For SMSFs, trustees generally have a greater role in managing the fund's tax and reporting obligations, including maintaining records of contributions, investment income and other relevant transactions.
You can find more information on the ATO website.
👋 Hey there! Here's your reminder to download Aware Super's financial action plan for your age. Doing these tasks can make a real difference to your super (and finances!) sooner than you think.
Risk level
One thing that's important to note is that every super fund has a certain level of risk when it comes to their investment options.
Every super fund comes with some level of investment risk. The risk you take on depends more on the investments you choose. For example, a high-risk investment option in a traditional super fund could be riskier than some SMSF portfolios. Some traditional super funds can also automatically adjust your investment mix over time to help manage risk as you approach retirement.
For example, Aware Super's default MySuper Lifecycle approach focuses on high-growth investments while you're under 55. But when you turn 55, it automatically adjusts your investment mixes into a balanced option to help reduce risk as you move towards retirement.
If you don't manage this risk effectively, then you could find yourself potentially losing a significant portion of your life savings.
This isn't to say there aren't safeguards in place. For example, any new investing decisions must show that they're in the best interest of the SMSF.
So if you want your SMSF to invest in assets traditionally considered to be high-risk (like crypto), you still need to demonstrate how it fits in with your wider investing strategy and the benefits it can bring to your portfolio.
Ease of management
Traditional super funds don't usually require a lot of time investment. Your super is managed by experts employed by your super fund.
However, running an SMSF might require you to:
Have a good knowledge of markets, assets and the best ways to invest for your desired outcomes
- Directly overseeing investment, which could be tricky if you're not an expert.
- Be compliant with all the relevant legislation, including tax and super laws and regulations.
- Bear responsibility for the fund's decisions and complying with super laws, including those made by another trustee.
- Organise your own insurance options, which could come at a higher cost.
It's important to think about your own level of expertise as well as how much time you're willing to dedicate to your fund.
Want to learn more about super and retirement? Make sure to check out these articles from Aware Super.
How you could get a tax benefit this EOFY by topping up your super
SPONSORED: Did you know that growing your super could give you a tax benefit? We look at how it works in several different scenarios.
SPONSORED: It's never too early to think about estate planning, especially if you're close to retirement. Here's your ultimate checklist to make planning easy.
SPONSORED: Cut your debt down to size, get your spending under control, and get serious about your super.
How to handle debt in retirement and stay smart with your super
SPONSORED: Debt doesn't disappear just because you've retired! We take a look at some of the ways you can tackle it alongside your super.
SPONSORED: Looking for easy wins to set yourself up for superannuation success? These tips from Aware Super can help!
SPONSORED: Instead of taking the first one that's offered to you, take some time to figure out which super fund is actually best for you. You'll thank yourself later.
SPONSORED: Your super is your future. Knowing how it’s going now can impact you at retirement.
4 questions to ask yourself before choosing your employer’s default fund
SPONSORED: Your super could be one of the most important investments you ever make, yet many of us let someone else decide where our money goes.
SPONSORED: Considering your super investment options carefully can help put more in your pocket for retirement.
Aware Super is a low-fee super fund with 12 different ways to invest including a MySuper option and an ethical investment option.
General advice only. Consider your objectives, financial situation, or needs, which have not been accounted for in this information and read the relevant PDS and TMD at aware.com.au/pds before acting. Product issued by Aware Super Pty Ltd (ABN 11 118 202 672, AFSL 293340), trustee of Aware Super (ABN 53 226 460 365).
Image: @Karola G from Pexels via Canva.com