Key Advantages Over Retail Super Funds + Case Studies
One of the most important decisions anyone must make about their retirement savings is selecting the best superannuation fund for them.
Most Australians are part of a retail super fund, which is typically managed by a large financial institution. However, more Australians than ever before are part of a Self-Managed Super Fund (SMSF), which allows individuals to manage their retirement savings.
While retail funds offer members convenience and simplicity, many Australians, couples, and families are turning to SMSFs because they want more flexibility and control over investments and retirement planning.
Of course, it all depends on your income, lifestyle, and retirement goals. So, we’ll explore what it is that SMSF members and financial planners often see as advantages of an SMSF compared to a retail superannuation fund.
1. Choose an SMSF for Greater Investment Control
One of the major benefits of an SMSF is the ability to choose and manage your own investments. Unlike retail funds, which offer a limited range of pre-selected investment options, SMSFs offer more control, and can invest in a much wider array of assets, including:
- Direct shares (ASX and international)
- Residential and commercial property
- Term deposits and bonds
- Collectables and commodities (subject to rules)
- Cryptocurrency (with conditions)
- You can engage in gearing strategies using limited recourse borrowing arrangements (LRBAs)
- Members can time the purchase of sale of assets for strategic tax planning purposes
SMSFs are also much more agile than retail funds; members can, therefore, respond much faster to market conditions to liquidate during a downturn, or optimise investments.
This flexibility allows SMSF members to take advantage of unique opportunities to tailor their investment strategy to their personal goals, financial needs, and risk tolerance much more than they would under a retail model.
Who Can Benefit from an SMSF? A Case Study - Business Owners: Combining Business and Super Strategies
For business owners, an SMSF opens the door to unique strategies not available in retail super funds. One powerful opportunity is the ability to purchase commercial property through your SMSF and lease it back to your own business at market rates. This can:
- Provide stable, tax-effective rental income to your fund.
- Free up cash flow for your business (by moving property ownership into the SMSF).
- Protect business premises from creditors.
Additionally, SMSFs allow business owners to proactively manage tax liabilities and retirement savings, aligning super strategies with broader business and life goals.
2. Choose an SMSF for Tax Flexibility and Planning
More scope for tax planning and personalised strategies means that SMSF trustees enjoy more control over the timing of contributions and withdrawals to minimise tax or reduce risk as they move closer to retirement. This includes strategies such as:
- Contribution splitting, which allows spouses with significantly different super balances to split up to 85% of their annual concessional contributions to their spouse’s balance without impact their contribution caps, and without tax losses.
- Making regular concessional contributions: which are taxed at just 15%, saving a minimum of 22% compared to personal tax rates.
- Reducing tax on earnings and assets in your SMSF, which are taxed much lower than personal tax rates, at just 15% whilst in the accumulation phase, and 0% in pension phase.
- Catch-up contributions: members with balances under $500,000 can make unused contributions in previous years – this is ideal for high-income years or capital gains events.
- Segregate assets between accumulation and pension phases to manage tax liabilities.
- Use franking credits from share dividends more strategically.
With the right advice, tailored SMSF strategies can significantly enhance after-tax returns and retirement outcomes.
3. Choose an SMSF for Greater Transparency
With an SMSF, members can see exactly where their money is invested, how it's performing, and what fees are being paid.
In contrast, retail funds may not offer full visibility over all underlying investments or the total fee structure - particularly when investments are managed through diversified or pooled options.
More transparency empowers members to make informed decisions and remain actively engaged with their retirement savings.
4. Choose an SMSF for the Cost Benefits (for Larger Balances)
While fixed administrative costs and compliance requirements can make SMSFs more expensive for small balances, they become more cost-effective as your super balance grows. Unlike retail funds, which charge fees based on a percentage of your assets under management, many SMSF costs are fixed, meaning:
- As your fund balance increases, your fees as a percentage of assets decrease.
- This can lead to better value for money in the long term for balances typically over $200,000, depending on the complexity and service providers you select.
High-net-worth individuals often seek greater tax efficiency, investment diversification, and control – all features offered by SMSFs. With the ability to manage capital gains timing, utilise franking credits, and implement tailored investment strategies, SMSFs can provide those with larger balances:
- Greater after-tax returns.
- More efficient wealth structuring.
- Intergenerational wealth transfer with estate planning strategies.
Further, the fixed costs of an SMSF become relatively minor, making it a cost-effective and strategic wealth management vehicle.
5. Pooling Resources & Family Wealth Consolidation
Similarly, pooling resources with family members can help SMSF members to save money and plan better for their retirement.
To explain: while retail funds only operate on an individual basis, since 2021, SMSFs can have up to six members, allowing families to consolidate their super balances into a multigenerational fund and manage wealth together. This can:
- Help reduce costs by sharing administrative fees.
- Create a unified investment strategy across family members and enable investment in large or otherwise inaccessible assets.
- Facilitate intergenerational wealth partner.
6. Tailored Retirement & Estate Planning
More control means it’s much easier for SMSF trustees to adjust withdrawal strategies according to market conditions, your stage of working life, or retirement.
Members can start a Transition to Retirement Pension (TRIS) while still working to assist with cashflow, debt repayment, or rebalancing superannuation between spouses. For example:
· Trustees can preserve assets by drawing only the minimum pension or rolling back to accumulation if required.
· Members can switch from riskier models and structure investments for stability (ie dividends or fixed income) to support pension payments.
- You can have greater control over how, and when benfits are paid, and timing (i.e. commence the pension when asset values are lower to maximise tax-free earnings once markets recover).
- Unlike in many retail funds, binding death benefit nominations in SMSFs don’t typically expire, offering you more certainty and control over benefits.
- SMSF members can structure their fund to ensure a smooth transfer of wealth to beneficiaries or to minimise tax paid by non-dependent beneficiaries.
This level of personalisation isn’t possible in standard retail funds.
Is an SMSF Right for You?
While SMSFs offer many advantages, they also come with responsibilities. Trustees are required to:
- Comply with super and tax laws.
- Maintain proper records and reporting.
- Ensure the fund is run for the sole purpose of providing retirement benefits.
Therefore, SMSFs are best suited to those with a strong interest in managing their finances, sufficient fund balance to justify the costs, and the willingness to engage professional advice when needed.
SMSFs can be a powerful tool for those seeking greater control, flexibility, and transparency over their retirement savings. If you’re considering making the switch from a retail super fund to an SMSF, it’s essential to seek professional advice to determine whether it aligns with your financial goals and circumstances.
For assistance with setting up or optimising an existing SMSF, fill out the form below.
