Guide

Home > Money Guide

A Self-Managed Super-Fund or a Pension? What's the Best Option for You?

You might think that a traditional pension is your best option for saving for retirement, but is that really the case? If the circumstances are right, you may get better returns by starting a self-managed super-fund. While both pensions and super-funds have the same end goal of providing you with a comfortable retirement, they have very different ways of achieving these outcomes. Here is an explanation of both types of retirement investment plans and how they can benefit you. 

Advantages and Disadvantages of Self-Managed Super-Funds
A self-managed super-fund (SMSF) is a great way to take a more active role in planning for your retirement. You and any other members of the fund are the official trustees, meaning that you are in direct control of your investments. This control and flexibility that you get with an SMSF is attractive to many consumers. The sense of personal responsibility associated with super-funds is also very rewarding. You can join with up to three other family members in order to create a Family Super Fund, which can maximise the profits on your investments and keep a steady source of retirement income available to you and your loved ones.

Best of all, a self-managed super-fund makes estate planning incredibly easy. You will be in regular contact with an auditor who is approved by the Australian Taxation Office (ATO) and who can make sure that your investments are on the right track. You will be able to dictate what happens to the SMSF after you are gone. You can dictate what sort of income streams you would like to make available to your dependant spouse or children. 

However, you may find that a self-managed super-fund is not the best fit for your plans and goals. You may feel that you do not have the knowledge and experience that it takes to build a portfolio on your own. You will also have to purchase insurance separately. If you like to have all of your important investments and assets in one place, then managing your own super-fund might not be the right choice.

Advantages and Disadvantages of Pensions
One of the biggest advantages of a traditional state pension account is that they are not subject to taxation. You also do not need to have a large sum of money to invest into your pension, which is good news for those who do not have a lot of superfluous income. Employer-based pensions are a great source of future retirement income for those who are in long-term employment.

Unfortunately, pension accounts do not always fare well in terms of returns. You will not be able to offset any losses against future gains you might have, which means that in a bad market your pension might suffer. Unlike a self-managed super-fund, you cannot enter into a pension scheme with multiple people. You are also not in control of how much is added and at what time it is added to your pension account.

In addition, you will not qualify for an age pension until you are at 64 or 65 years old. If you want to retire sooner than that, you will need to have another source of income available to you. Your assets and any current cash flow that you have may also affect the amount of pension money you are eligible to receive. Your work pension may not pay out as much as you will need for your retirement.

Self-Managed Super-Funds: the Right Choice for a Successful and Well-Managed Retirement
While both super-funds and pensions have their advantages and disadvantages, the freedom of choice that is associated with a super-fund makes it a clear winner for anyone who is hoping to have a well-funded retirement. The ability to take control of your own retirement and plan accordingly for the future is a real asset to anyone of any age or class. If you're interested in starting your own super-fund, then you may want to get in touch with an ATO-certified auditor today in order to explore your options.