Difference Between A Self-managed Super Fund and a Regular Superannuation Fund

Difference Between A Self-managed Super Fund and a Regular Superannuation Fund

Employed individuals are eligible for retirement benefits or superannuation but not all are satisfied with the investment selections of pre-made superannuation funds. This is why individuals are allowed to set up their own self-managed super fund or SMSF. These two types of super funds have their own merits and generalising that one is better than the other is not recommended. Would be contributors should take time to consider the benefits and drawbacks of the two before making an investment decision for their retirement.

Let’s see the comparison between a self-managed super fund and a fund managed super fund.

The Strength in Numbers

Superannuation or retirement plans are run and managed by professional fund management companies. Majority of employers and employees choose this option and there is no limit to the number of members. The work needed to be done and the management or your super portfolio are taken care of by professionals and all a contributor needs to do is watch or track their accounts.

On the other hand, self-managed super fund can only have a maximum of four members (but will soon be increased to 6 members). Trustees or members should also ensure that the fund complies with state, super and tax laws. All members are liable and can be fined if they made any violations or committed breaches against super laws.

The Privilege of Choice.

Pre-chosen super plans usually offer safe or balanced investments for their contributors. However, even if the investment choices are balanced, safe and diversified, the possibility of getting high returns is low. Pre-chosen superannuation funds are designed for maximum safety while continuously earning for its members, who are average risk-takers and low investors.

On the other hand, SMSF is good for people who want more choices to invest their money on. Self-managed super fund is a better choice for moderately aggressive and risk-takers who like or choose a more personalised approach to investing than staying safely along the sidelines with little or average but steady rewards.

The Importance of Skill

Most superannuation funds or retirement funds are managed by professional fund managers. However, even if contributors can relax and sit back while experts do their work on their superannuation, employees should track their accounts to get the most out of their super investments. An employee may need to pay huge fines for violating the law if they exceed the contribution cap.

SMSF trustees are given the opportunity to work on their retirement funds by making their own investments and steering their own investment strategies, even if they pay professionals to keep track of the fund’s legalities. This is why SMSF members or trustees must have the knowledge they need regarding tax laws and  super regulations in their state to make sure that they are legally complying with them and to avoid violating or breaching any existing rules. Compliance responsibilities lie on the trustees and not on the professional managers.

The Goodness of Safety Nets

Managed superannuation funds typically come with insurance that assures clients that they have safety nets in case something bad happens.

A member of self-managed super fund may or may not have any insurance policies to protect their savings and assets. The decision to insure the funds depends greatly on the trustees’ agreements.

The Power of the Regulatory Body

The Australian Prudential Regulation Authority or APRA regulates superannuation funds. Members do not, however, need to interact with the office, unless they need to dispute something or if they have to make a complaint. They are also assured that the super complaints tribunal will resolve issues and give them compensation or financial help for their troubles.

As for self-managed super fund, these funds are regulated by the Australian Taxation Office or ATO. Trustees need to regularly interact or engage with the office as they manage their funds. If disputes arise, either internally or externally, SMSF trustees should sort the problems on their own.  SMSF trustees are also not eligible for any financial assistance from the government in cases of investment fraud or theft.

Conclusion. Choosing which super to choose, a regular super or a self-managed super fund, highly depends on the contributor. Given the difference between a regular super and SMSF can now give you an idea of what you are getting into. However, you should also do your own research before making any investments. Your super is like your nest egg for your retirement savings, and you are putting good hard earned money into it, therefore, you have to make sure that your money is safe for your future and that you will get the best of it once it is time to retire. Making sure that your money will work for you and earn as you set it aside is a big plus factor, but making sure that you get something when you retire is also very important.

If you want to play it safe, you might opt to have a regular super but if you feel that you can nail the proper investments and make them earn for you in a self-managed super fund, then you can choose to have an SMSF instead. But make sure that you are confident and sure about your decision and check with an approved SMSF auditor that offers compliance audit services, because, in the end, you will be the one to reap the consequences.

Kingston Knight Audit are the Auditor Melbourne experts to contact when dealing with your trust account audit, SMSF Audit, financial statement audit,  and internal audit requirements. Contact us today, Kingston & Knight Audit offers a free telephone consultation to establish how we can best help you achieve the assurance and compliance you require.

Call our Melbourne team today on 03 9088 2242, or email us via  audit@kingstonknightaudit.com.au.

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