Australia’s superannuation industry is the fourth-largest private retirement/pension fund in the world and still growing. Our combined superannuation assets have long since passed the $2 trillion mark and of these, 22.7% of superannuation assets are currently held by self-managed superannuation funds (SMSFs).
Most members of retail, industry or employer superannuation funds are not particularly interested in how their fund is managed. They are content to trust their investments to fund managers whom they perceive to be more knowledgeable than they are, and therefore more likely to make better investment decisions.
Other people who are more financially aware than most of the superannuate population have taken steps to start their own SMSF and there are now approximately 600,000 of these funds in Australia. This growth has been escalated by changes to borrowing rules in 2007, which allowed SMSFs to borrow funds to purchase investments, including residential property.
The opportunity still exists for people with reasonable financial knowledge to set up their own SMSF and start planning for retirement. There is also a thriving support network of specialist SMSF administrators such as SMSF Assure to help with administrative and compliance requirements. With that in mind, here are three reasons to start working on setting up your own SMSF right now.
The first is the amount of control the SMSF trustees have over their own destiny. They decide on the types of investments in their portfolio, and the level of risk they are prepared to take to reach their goals. They are also in charge of distributing pensions and death benefits, so there is a high level of responsibility involved. This close involvement in the activities of the fund increases the level of engagement in its performance.
The second reason is the amount of flexibility that overseeing the fund affords the trustees. They can invest in a wide range of asset classes within the confines of the superannuation regulations and the terms of their SMSF trust deed. Most SMSF trustees will still invest in traditional assets but they can also invest in other assets such as works of art, collectibles and residential real estate. This flexibility also means they can change their investment portfolio to meet market and regulatory changes.
The third reason is the changes to borrowing rules mentioned earlier. SMSF trustees can acquire assets like residential or commercial property, which, prior to 2007, were out of the reach of superannuation funds. The concessional tax rates on the earnings from these investments are attractive and this gives the trustees and members the opportunity to build their super balances faster than would previously have been possible.
If those are not enough reasons for you to take charge of your retirement income, there is one more reason that is an overriding factor. The sooner you start, the more opportunity you have to build your investment portfolio. The longer your superannuation fund is active in the market, the more chance there is to grow the returns, allowing you to work towards the retirement lifestyle you desire.