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What is the difference between a super fund and an SMSF

difference between super fund and SMSF

Employed individuals are eligible for superannuation, but not everyone is satisfied with the selection of investments with pre-made supers. Individuals are allowed to set up a self-managed super fund (SMSF) in lieu of professionally managed supers.

Both types of super funds have their merits so generalising that one is better than the other is ill-advised. Contributors should take their time and skills into consideration before making a decision for their super.

Here is a comparison between the fund managed super and an SMSF:

Power in numbers

Superannuation plans are managed by professional fund management companies. Since majority of employers and employees choose this option, there is no limit on the number of members. All the work and portfolio management are handled by professionals and contributors only need to keep track of their accounts.

An SMSF, on the other hand, has a four-member limit. All members serve as trustees and co-manage the SMSF. Trustees must ensure that the fund complies with all super and tax laws. Each member will be held liable and fined if there are any breaches committed.

Power of choice

Pre-selected super plans have the tendency to offer a safe set of balanced investment funds for contributors. Although most of the choices are diversified, balanced and safe, the possibility of chasing high yield when opportunities arise is low.

Most pre-selected super funds are designed for maximum safety while earning continuously for its members, who are usually low and average-risk investors.

In contrast, an SMSF is a good choice for contributors who want more choices on where their money gets invested. SMSF is the better choice for moderately aggressive and aggressive risk takers who prefer a personalised approach to investing rather than staying safely in the sidelines with low to average, though steady, rewards.

Power of skill

Most supers are managed by professional fund managers. Although contributors can just sit back and relax while experts work on growing their retirement money, employees should keep track of their super accounts to get the most out of their retirement investment(s). Employees may pay huge fines for breaching the law if they exceed the contribution cap.

SMSF trustees ‘paddle their own rafts’ even when they pay professionals to keep track of their fund’s legalities. SMSF members should be knowledgeable about super regulations and tax laws to ensure legal compliance and avoid breaching existing regulations. The responsibility of compliance lies solely on the trustees, and not on professional managers.

Power of safety nets

Managed super funds usually come with insurance to assure clients that they have a safety net in case anything bad happens.

SMSF members may or may not have an insurance policy to protect their funds. The decision to insure their fund rests upon the trustees’ agreement.

Power of the regulatory body

Super funds are regulated by the Australian Prudential Regulation Authority (APRA), but members don’t need to interact with the regulatory office, unless there are any disputes or complaints., Fund members are assured that the superannuation Complaints Tribunal will be able to resolve issues, and can even reward them with statutory compensation or government financial assistance for their troubles.

SMSFs, however, are regulated by the Australian Taxation Office (ATO). Trustees must regularly engage with the office to manage their funds. In the case of any dispute, internal or otherwise, SMSF trustees are on their own. In addition, the trustees are not eligible for any financial assistance from the government in cases of theft or investment fraud.

This information has been sourced from the Australian Taxation Office.

What is the difference between a super fund and an SMSF
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