Retirement

What is the difference between a super fund and an SMSF

By Louise Chan

May 08 2018
Share

Retirement

What is the difference between a super fund and an SMSF

By Louise Chan
May 08 2018

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.

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

Professionally managed super fund vs SMSF

	Professionally managed super fund	SMSF
Power in managing the fund	It managed by professional fund management companies. Since the 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.	SMSF 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.
Control of the investment strategy	Professionally managed super funds 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, moreover, are designed for maximum safety while earning continuously for its members, who are usually low and average-risk investors.	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 invest rather than staying safely in the sidelines with low to average, though steady, rewards.
Responsibility for compliance	Most professionally managed 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.
Access to safety nets	Professionally 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 ensure their fund rests upon the trustees’ agreement.
Regulatory body	These 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 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.

Professionally managed super fund vs SMSF: Which one to choose

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.

To guarantee that you end up with the superannuation set up that suits perfectly with your objectives, risk tolerance, and time, make sure that you understand everything you need to know about professionally managed super funds and SMSFs. As mentioned in the table above, both of them have their own sets of features that may attract a certain group of people.

For most Australians, choosing a professionally managed super fund, such as MySuper, is their default choice. All money invested in these super funds is managed by experienced fund managers. Fund members generally do not have any responsibility in developing the investment strategy for their super funds, giving them limited to no control of when o buy and sell investments.

But for Australians who aim for greater control over where their super money goes, choosing to set up SMSF sounds more attractive to them. It gives them the capability to control how their wealth and investment strategies shall work, allowing SMSF members to set up an approach that suits ideally with their current state of life. This allow SMSF members to potentially obtain higher returns.

Ultimately, what structure to choose will depend on your individual circumstance. If you want greater control over your investments, then set up SMSF. But if you are more comfortable relying on the expertise of seasoned fund managers, then go for an industry fund. You can also seek professional advice to better understand your circumstances and have better knowledge on which superannuation trust structure to choose.

What is the difference between a super fund and an SMSF

By Louise Chan

May 08 2018
Share

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

Professionally managed super fund vs SMSF

	Professionally managed super fund	SMSF
Power in managing the fund	It managed by professional fund management companies. Since the 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.	SMSF 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.
Control of the investment strategy	Professionally managed super funds 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, moreover, are designed for maximum safety while earning continuously for its members, who are usually low and average-risk investors.	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 invest rather than staying safely in the sidelines with low to average, though steady, rewards.
Responsibility for compliance	Most professionally managed 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.
Access to safety nets	Professionally 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 ensure their fund rests upon the trustees’ agreement.
Regulatory body	These 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 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.

Professionally managed super fund vs SMSF: Which one to choose

question marks in granite road difference between super fund and smsf

Forward this article to a friend. Follow us on Linkedin. Join us on Facebook. Find us on X for the latest updates

Rate the article

About the author

Louise Chan

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

About the author

Louise Chan

sections

sections

sections

sections

sections

sections

sections

Retirement