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In order to make the best decisions regarding your retirement nest egg you need to understand the differences in where you are putting your superannuation contributions and how it can best be put to work. SMSFs are gaining popularity as more Australians look for control over their retirement savings but they aren’t for everyone. Before deciding which option is best for you or how to best utlise your current fund you should have a clear understanding of the different options and what purposes they serve. Let’s take a look at some of the differences between SMSFs and Public Offer Funds (Industry and Retail Super Funds)

How Are Your Contributions Put to Work?

SMSF

SMSF or self-managed super fund is called as such because you are both a member and the trustee of the fund and have complete control over where contributions are invested within the guidelines of the law. You can invest in direct shares, unlisted assets or direct or syndicated property. As opposed to a Public Offer Fund (Retail and Industry Super Funds) you are responsible for implementing, documenting, reviewing and developing the investment strategy for your fund. For this reason, an SMSF is not for everybody, however, through a team including an experienced financial advisor and accountant SMSFs can be utilised quite efficiently and effectively to build a high performing retirement investment portfolio. 

Public Offer Funds

Unlike an SMSF in a Public Offer Fund the majority of the control is taken away from you which can be seen as an advantage or a disadvantage depending on your position, objectives and where your contributions are invested. You can choose from investment options provided by your chosen fund and many public funds offer a variety of investment options, however, most do not offer property investment or unlisted assets.

Can You Borrow Money Through Your Super Fund?

SMSF

You can borrow to purchase assets such as shares and property within an SMSF as long as you follow the regulations that apply to trustees. It is important to seek professional assistance to ensure that the regulations are followed as they are quite complex and members and trustees are directly liable for all operations within the fund.

Public Offer Funds

Trustees of public offer funds do not borrow on behalf of members in said funds however some funds do offer investments that are internally geared and as such should be investigated before deciding on a specific fund depending on your objectives. 

Responsibilities of Fund Members and Trustees

SMSF

In an SMSF you can have up to 4 members and unlike a public offer fund all members are both trustees and members. Therefore upon creating an SMSF you take all the responsibilities as a trustee of complying with all regulatory requirements and administration. This doesn’t, however, mean that you can’t outsource administration to a company to help you to set everything up, however, the liability to make sure that all responsibilities are completed correctly still falls on the Trustees of the fund.

Public Offer Funds

A public offer fund generally has the administration and Investments formed by a trustee who is unrelated to the members of which there is no limit. This might be a better option to an SMSF for those with a smaller account balance or who aren’t comfortable taking care of the responsibilities of the fund or the costs of having an appropriate party handle such responsibilities.

Fund Costs

SMSF 

Self managed super fund costs will vary depending on your requirements and therefore there is no specific number. There are financial requirements as far as setting up your fund, the accounting costs, internal costs of managing your investments and administration costs. For smaller balances an SMSF may not be viable however there are full administration offers online for as little as $1,000 however the statistical average is around 1% of a balance of $400,000.

Public Offer Funds

Industry and Retail super funds have generally no cost to open an account however would include management fees administration fees investment and transaction fees on an ongoing basis. The actual spend amounts vary massively between the funds and therefore doing your due diligence before committing to any specific fund is an absolute must. Calculating how much of a toll any hidden fees will have.

Final Thoughts

Which fund you decide to use to build your retirement nest egg is entirely dependent on your unique position, the level of risk you can afford to take and the amount of control and management you wish to have over how your contributions are invested. SMSFs are growing rapidly in popularity but are most often not a viable option for balances under $200,000 unless creating an SMSF with other members due to management fees.