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SMSFs are on the rise – but why?

Feb 2, 2023, 16:35 PM
Ailidh Morrison

Ailidh Morrison 
Direct SMSF Sales Manager

Piggy bank

Self-Managed super funds (SMSFs) are becoming an increasingly popular choice for individuals looking to take control of their retirement savings. According to the ATO's statistical overview report for 2019-20201, the number of SMSFs in Australia has grown by 5.6% to over 600,000, with total assets reaching $822 billion. This accounts for 25% of Australia’s overall super assets.

Greater control and oversight 

One of the main reasons for the growth in SMSFs is the greater control they provide. SMSFs can provide individuals with more control over their superannuation savings by allowing them to make investment decisions and manage their fund. 

As a trustee of an SMSF, you have the power to select the assets to invest in, monitor the performance of investments, and control contributions and withdrawals. SMSFs also allow for greater flexibility in terms of investment options, including the ability to invest in assets such as property and collectibles.

New research from the SMSF Association2 shows that SMSFs with net assets of more than $200,000, that is not concentrated in cash and term deposits, outperformed APRA regulated funds in two out of three years between 2017 and 2019.

Establishment and running costs

Another factor that has contributed to the growth of SMSFs is the lower cost of establishment. Technology efficiencies, such as automation and online platforms, are helping to lower set up costs by streamlining the process. These efficiencies also make it easier for individuals to access information and complete tasks related to setting up and managing an SMSF. 

It is worth noting that the cost of setting up an SMSF can vary and depends on factors such as the fund's structure and the level of service required. Depending on your structure, SuperConcepts can help you establish an SMSF from as little as $650.
SMSFs often have lower ongoing costs, allowing individuals to keep more of their hard-earned money in their super account. According to the 20202 report by the SMSF Association SMSFs with $200,000 or more are competitive with both Industry and Retail funds and funds with $250,000 or more become the cheapest alternative. 

Taxation benefits

In addition, SMSFs may offer tax benefits such as the ability to claim deductions for certain contributions and investments. According to the ATO report1, SMSFs received $4.5 billion in tax concessions in 2019-2020.

Some of these potential tax benefits include:

• Concessional contributions: SMSF members can make concessional contributions, which are taxed at a rate of 15%. These contributions include employer contributions and personal contributions for which an individual claims a tax deduction.

• Income tax exemptions: SMSFs that are in full pension phase do not pay income tax on their earnings. This can lead to significant tax savings for SMSF members who are retired or nearing retirement.

• Capital gains tax (CGT) exemptions: Assets that have been held for more than 12 months by an SMSF in full pension phase may be eligible for a CGT exemption. This means that any capital gains made on the sale of these assets will not be taxed.

• Tax deductions for certain contributions: SMSF members may be able to claim a tax deduction for personal contributions they make to their fund, subject to certain conditions and limits.

• Tax offsets for contributions: SMSF members may also be eligible for tax offsets for contributions made by their spouses, subject to certain conditions and limits.

Pooled super balances and multi-member funds

Another important aspect of SMSFs is the pooling of superannuation balances and multi-member funds. According to the ATO report, 76% of SMSFs have two members or more, whilst 24% have one member. The pooling method allows multiple individuals to combine their super savings into one fund, to achieve economies of scale and potentially better investment returns. 

In conclusion, SMSFs continue to gain popularity in Australia due to the greater control they provide, cost savings, wider investment options, tax benefits and the ability to pool superannuation balances. 

It is important, however, to consult a financial advisor and understand the responsibilities and regulations that come with running an SMSF before deciding to establish one.

1 ATO Self-managed super funds: A statistical overview 2019–20

2 SMSF Association report: Cost of operating SMSFs 2020

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