DIY Superannuation funds are growing rapidly in popularity with many people deciding that this kind of super fund offers them the best returns on their retirement investments. So what exactly is a DIY super fund? What makes it different from the others? Is it suitable for you? And if it is, how do you do you form one?
What is a DIY Superannuation Fund?
A DIY super fund (also known as a Self-Managed Super Fund or SMSF) is, as the name suggests, run by its members with the aim of benefiting them financially once they retire. For ease of management, SMSFs are small, having less than 5 members, with each member of the fund being a trustee of the fund and each trustee of the fund being a member. The members of the Self Managed Super Fund are responsible for administering all aspects of their fund – making the important decisions, deciding which investments to pursue and keeping in line with the laws which govern such funds.
This means that if you are interested in putting your money into a super fund such as this, you must be willing to be active in its day-to-day workings. Whilst you can sign up and then more or less forget about some other kinds of super fund, confident that someone else is looking after your retirement nest egg, this is not the case with a SMSF. Your future financial stability very much relies on your regular input into your DIY super fund.
How does a Self-Managed Superannuation Fund Work?
An SMSF is very similar to a trust. You need a trust deed, trustees are appointed (which in this case are the members of the super fund) and certain tax formalities like an ABN and TFN must be registered with the Australian Taxation Office (ATO). It is also necessary to have an agreed investment strategy in place, or your SMSF will never get off the ground. Once matters such as these have been decided a bank account can be opened in the name of the SMSF.
This bank account is the very lifeblood of the fund. The members of the new Self –Managed Super Fund pay both their employer and personal (if applicable) contributions into this central pool, and in return, pensions out come once those members are eligible for them.
Why Choose a Self Managed Super Fund?
Some people like to have full control of their finances and don’t like to hand that power over to others, even if they are superannuation specialists.
Other SMSF members are attracted by the large range of investment options that can be made available through this type of super fund. These can include opportunities to invest in areas as diverse as precious metals and jewellery, term deposits, listed shares and property.
Importantly, there can be major tax benefits in having your superannuation in a SMSF. Self-Managed Super Funds are liable for tax, but at a concessional rate which can be as low as 15%, as long as the fund complies.