SMSF Vs Industry Super: Which One is Best for Me?

Your super is one of the biggest long term investments you’ll ever make. The good news is, you have the freedom to invest your super in a way that suits your current financial situation and personal savings goals. Whether you prefer the control and flexibility of a Self-Managed Super Fund (SMSF), or the simplified and low-risk benefits of an industry super fund – the choice is yours.

Let’s go under the microscope to find how you can choose the right type of super fund for you.

Advantages of an Industry Super Fund

For starters, being part of an industry fund is easy and low-risk. Industry funds are popular because they have low fees, are run by non-profit organisations – so they exist solely to benefit the members, not to fill the pockets of shareholders – and offer a range of balanced, low-risk investment options.

Earning money from an industry fund requires very little effort. That’s because no matter what industry fund you join the risk-reward approach mostly stays the same for your whole life. In most cases, when you first join an industry fund your super will either automatically be invested into a balanced investment strategy, or you can invest in another structured investment option that better suits your individual needs.

For example, Australian Super offers three kinds of investment options: PreMixed, DIY Mix and Member Direct. Each option is different based on the level of risk and involvement the member is willing to take on. The PreMixed option invests in a combination of low-risk assets like shares, property and cash. But the Member Direct option lets you invest in more risky yet rewarding assets like term deposits, Exchange Traded Funds (ETFs) and S&P/ASC 300 Index.

The peace of mind offered by industry fund insurance is another benefit. Most industry funds offer life insurance as standard. Some also offer Total and Permanent Disability (TPD) insurance and Income Protection Insurance (IPI) which gives you a stable income if you are permanently or temporarily unable to work. SMSF members can also access these types of insurance, but industry funds have the bulk buying power to negotiate lower rates and pass the savings on to members.

Best of all? Most industry funds will automatically accept you for cover without the need for a health check.

Advantages of an SMSF

However, these statements do little to hide the fact SMSF members enjoy a far greater level of control, freedom and flexibility. Since there’s no industry fund to ‘hold your hand’ and offer structured investment options, you have the freedom to invest in a more broad range of assets such as commercial and residential property, cash accounts, term deposits, local and overseas shares, artwork, collectables and more.

Not only that, but savvy financial investors can borrow money and pursue more lucrative assets that most industry super members never see. While the risk level is much higher, you have a chance to earn much higher gains, and if you know how to diversity your portfolio – you can lessen the impact of any losses you incur.

But what about tax benefits? As an SMSF member the income you earn is generally taxed at a concessional rate of 15%. However, the amount of tax you pay depends on how long the asset is held onto before a sale. If the asset is held for 12 months or more before a sale the capital gains tax can be as low as 10%.

Furthermore, if the super fund is paying a retirement income stream to members, the amount of tax can be much lower… even zero percent if all members are earning a retirement income.

Explore Your Options

Whether you choose to allocate your super into an industry super fund or SMSF will depend on your financial situation, the amount of time and effort you can put into manage your super, and how confident you are in making your own investment choices.

Consulting a financial advisor or SMSF specialist can help you make the right start. By analysing your current financial situation, they can help you understand which type of super fund is right for you. This way, you have all the information you need to make informed financial decisions for the future and beyond.