Balancing Your Superannuation
Managing your retirement funds effectively often raises a few questions. One of which is, can you have both a Self Managed Super Fund (SMSF) and an Industry Super Fund?
The answer is yes, you can have both an SMSF and an industry super fund, meaning could enjoy the benefits of both. But, operating both may involve additional costs that could outweigh the benefits.
Balancing your superannuation and deciding whether or not to have both an SMSF and an industry super fund can influence your financial stability in the future. For detailed advice tailored to your financial goals, we encourage you to contact us.
Understanding Superannuation
What is Superannuation?
Superannuation, or “super” as it’s commonly referred to, is essentially a long-term savings plan designed to provide individuals with a source of income in their retirement years. It’s a scheme that supports employees throughout Australia to accumulate savings while they’re still working, which are then used to generate income to fund retirement.
There are a wide variety of superannuation fund types and each varies in their structure, degree of control, costs, and associated risks. Hence, the question of having one or both becomes pivotal in your retirement planning.
Superannuation is compulsory
A key aspect of superannuation is that it’s compulsory. Employers are legally obligated to make contributions to their employees’ super accounts based on a percentage of an employee’s ordinary time earnings.
This percentage is regulated by the ATO and can change over time, adjusted with inflation and rising interest rates. The current superannuation guarantee rate, as of the latest change in July 2023 is 11% and is expected to rise to 12% by July 2025.
As well as the compulsory payments by employers, Australians can also choose to make voluntary contributions to boost their super savings.
Self-Managed Super Funds (SMSFs)
An SMSF is a private superannuation fund that you manage yourself. It’s regulated by the ATO, and as a fund, it offers the highest level of control over your retirement savings.
With an SMSF, you’re the trustee, making all the investment decisions and bearing the responsibility of complying with the relevant laws. It’s a more hands-on approach that allows for a wider range of investment options.
According to the ATO, there were 603,432 SMSFs managed by Australians as of 2022.
Industry Super Funds
On the other end of the spectrum are Industry Super Funds. These are funds originally established by industry bodies for their employees but are now typically open to anyone.
They’re managed by professionals, regulated by APRA, and are generally characterised by lower fees due to their not-for-profit nature. Industry Super Funds offer less control than SMSFs but provide simplicity, ease of management, and a hands-off approach to your retirement savings.
Can You Have Both an SMSF and an Industry Super Fund?
In Australia, there’s no legislation preventing you from operating both an SMSF and an industry super fund at the same time, meaning you can enjoy the benefits of both and diversify your savings. But, there can be additional costs associated with separate sets of fees.
Despite this, there are several scenarios where having both an SMSF and an industry super fund could be beneficial.
Benefits of Using Both an SMSF and an Industry Super Fund
1. Diversification
By having both an SMSF and an Industry Super Fund, you’re not putting all your eggs in one basket. Diversification can help spread the risk and potentially increase the chances of steady growth in your retirement savings.
2. Asset Protection
If you hold certain assets in your SMSF that aren’t permitted in industry funds – like property or artwork – you might choose to maintain an SMSF for this purpose, while also benefiting from the simplicity and ease of an Industry Super Fund for the rest of your super.
3. Insurance Coverage
You might want to maintain an Industry Super Fund because of certain insurance coverages that are less expensive or otherwise unattainable through an SMSF.
4. Ease of Transition
For those nearing retirement, having both funds can make it easier to transition from the accumulation phase to the pension phase. You can start drawing a pension from one fund while still contributing to the other.
The Current Super Fund Landscape in Australia: Are Australians Balancing Multiple Super Funds?
Based on the most recent super fund statistics and data from the ATO, it’s clear that the superannuation landscape in Australia is diverse, with a considerable number of Australians holding accounts in more than one super fund.
Single versus Multiple Super Funds
Historically, many Australians ended up with multiple super accounts by default, as they changed jobs and their new employers contributed to different funds.
However, with increased awareness about the potential downside of multiple super accounts – such as duplicated fees and insurance premiums – there has been a concerted effort by both the government and individuals to consolidate super accounts.
Because of bodies like Moneysmart, the trend for the average Australian is now leaning towards maintaining a single super fund account. This simplifies the management of retirement savings and helps to keep a lid on fees and other costs. But, this isn’t to say that having multiple accounts, such as an SMSF and an Industry Super Fund, isn’t a beneficial move for certain individuals.
It all depends on personal circumstances, financial goals, and retirement planning strategies.
Why Some Australians Choose to Have Multiple Super Funds
Despite the trend towards consolidation, some Australians still opt for multiple super funds. For example, they may choose to keep their Industry Super Fund while also operating an SMSF. The reasons for doing so often include:
- Some people value the control and flexibility offered by an SMSF but also appreciate the simplicity and low-cost structure of an industry fund.
- Others may have specific assets in their SMSF they wish to hold onto, while also benefiting from the diversified investment options of an Industry Super Fund.
- There are also cases where members want to maintain certain insurance coverages offered by their Industry Super Fund that are not as readily available or affordable within an SMSF.
So while the trend is leaning towards single super fund accounts, having multiple super accounts, including both an SMSF and an Industry Super Fund, could be a strategic choice for some Australians. Though, the decision should be based on individual financial circumstances, retirement goals, and personal preferences.
Financial Implications of Operating Both an SMSF and an Industry Super Fund
Operating multiple super funds, such as an SMSF and an Industry Super Fund, comes with its own set of implications. It’s critical to understand these before making the decision to maintain more than one account.
Understanding the Financial Costs
Managing multiple super funds means managing multiple sets of fees. These fees can include administration fees, investment fees, and insurance premiums, all of which can eat into your retirement savings over time. Moreover, SMSFs come with their own unique costs, such as auditing fees, ATO supervisory levies, and potential advice fees.
How Does it Compare to the Profits?
Whether or not it’s worth operating multiple super funds depends on your financial situation and goals. The Australian Securities & Investments Commission (ASIC)’s Moneysmart has a comprehensive Superannuation Calculator that can help you assess the impact of fees on your super balance.
But for tailored advice to your own situation, an accountant or financial advisor with experience setting up SMSFs and managing SMSFs can give you more specific insight.
Comparing SMSFs and Industry Super Funds
Both SMSFs and Industry Super Funds have their unique advantages and disadvantages, and understanding these can help you make an informed decision about your super strategy.
Industry Super Funds
Pros
- Simplicity: Industry Super Funds are relatively easy to manage. The fund takes care of all the administration, investment decisions, and compliance responsibilities, meaning you can “set and forget” if you choose.
- Cost-Effective: Typically, Industry Super Funds have lower fees compared to retail super funds, which could result in higher net returns over the long term.
- Diversified Investment Options: These funds often provide a broad range of investment options to choose from.
Cons
- Limited Control: You have less control over investment decisions compared to an SMSF. You can usually choose from a range of predefined investment options but can’t select individual shares or property, for example.
- Potential for Duplication: If you have more than one super account, you may end up paying fees and insurance premiums multiple times.
Self-Managed Super Funds (SMSFs)
Pros
- Greater Control: One of the main reasons people set up an SMSF is to have direct control over their investment decisions. With an SMSF, you can invest in a wider range of assets, including direct property and certain collectables.
- Flexibility: SMSFs offer more flexibility in terms of investment strategies, tax management, and estate planning.
Cons
- Higher Costs: SMSFs can have higher setup and running costs compared to other types of super funds. These costs can be significant, especially if the fund balance is relatively low.
- Time and Knowledge: Running an SMSF requires a significant time commitment and a reasonable level of financial knowledge. As a trustee, you are also legally responsible for all the decisions made by the fund.
Should You Use Both an SMSF and an Industry Super Fund?
Deciding between having one super fund or multiple, including both an SMSF and an Industry Super Fund, isn’t an easy choice. There are several factors to consider, and it’s often recommended to seek professional advice before making up your mind.
- Financial Goals: Your personal financial and retirement goals will significantly influence your decision. Are you looking for greater control over your investments, or are you more interested in a hands-off approach?
- Time Commitment: Managing an SMSF requires a significant time investment. Consider whether you’re willing to put in the necessary time to manage your super fund effectively.
- Knowledge and Expertise: Do you have the required financial knowledge and experience to manage an SMSF? If not, are you willing to learn or seek professional advice?
- Costs: Can you afford the costs associated with running an SMSF, especially if you’ll also be managing an Industry Super Fund?
Help Managing Your Super Funds
We can give you a hand
Our SMSF accountant team at New Wave Accountants & Business Advisory has extensive experience advising on these considerations and more. We believe that the decision should be made based on a comprehensive understanding of your personal circumstances, preferences, and financial goals.
Actively managing your super fund(s) is key to ensuring that you’re on track to meet your retirement goals. Whether you have one super fund or multiple, keeping track of your investment performance, fees, and insurance premiums can help you optimise your retirement savings.
At New Wave Accountants & Business Advisory, we offer a range of services tailored to help you effectively manage your super fund. From SMSF setup and compliance to strategic advice on your superannuation strategy, we’re here to provide the support you need.
If you have more questions or need further advice, don’t hesitate to reach out and contact us. Let us help you balance your superannuation strategy and secure your financial future.
At New Wave Accountants & Business Advisory, we offer a range of services tailored to help you effectively manage your super fund. From SMSF setup and compliance to strategic advice on your superannuation strategy, we’re here to provide the support you need.
If you have more questions or need further advice, don’t hesitate to reach out and contact us. Let us help you balance your superannuation strategy and secure your financial future.
