SMSF and Industry Fund: Which is Better?
One of the most important decisions as you plan your retirement is your choice of route when it comes to superannuation. You have two options: a self-managed superannuation fund (SMSF) or an industry fund.
It might be tricky to decide which of the two you should choose but each option has its own benefits and drawbacks.
What is the difference between industry funds and SMSFs?
The main difference between the two superannuation funds boils down to the structure: an SMSF, from its name itself, is self-managed while an industry fund is more widescale, and managed by industry associations and members.
Industry Fund
An industry super fund is a not-for-profit organisation that benefits the members - this means that any profits the fund makes are reinvested.
Typically, industry funds are operated by trade unions and employer associations in certain fields like hospitality, healthcare, and construction. This meant that members should only join if their professions belong to specific industries. Most of these funds, however, are now open to the public.
Employers might provide you with options to join a super fund affiliated with your industry, but you are in no way obligated to join - you are still free to choose any super fund you would like to participate in.
It is important to mention the existence of retail super funds — they work similarly to industry funds except for the not-for-profit part.
Retail funds are offered by investment companies and banks. While they offer a wider range of investment options, they also come with higher fees.
SMSF
An SMSF is a private superannuation, where everything is do-it-yourself - from managing and overseeing the members to strategizing the fund's investments.
SMSFs can have no more than six members, who also serve as trustees of the fund.
However, for SMSFs running under a corporate trustee structure, a company must be established, and members will serve as directors.
Similar to industry funds, SMSFs are for the purpose of building wealth for its members.
SMSF and Industry Fund: Which is Better?
One of the most important decisions as you plan your retirement is your choice of route when it comes to superannuation. You have two options: a self-managed superannuation fund (SMSF) or an industry fund.
It might be tricky to decide which of the two you should choose but each option has its own benefits and drawbacks.
What are the advantages and drawbacks of industry funds?
Industry funds are generally popular among many Australians because it offers convenience — members are not responsible for managing the fund.
It is still important however to know the advantages and disadvantages of an industry fund from a different perspective to know if it is the right route for you.
Advantages of an industry fund
-
Industry funds charge lower fees as they are run for the benefit of the members.
-
The not-for-profit nature of industry funds allows them to reinvest their profits.
-
Industry associations can provide members with specialised insurance coverage.
-
Professional licensed trustees are responsible for managing the funds.
Disadvantages of an industry fund
Advantages of an SMSF
If something goes wrong and the loan can't be repaid, the lender can only claim the property purchased with the loan. They cannot go after other assets in your SMSF or your personal assets.
-
SMSFs require members to be hands-on — there is a need for members to always do their research regarding investment options.
-
SMSFs have no access to government compensation schemes.
-
It can be hard to access dispute resolution bodies with an SMSF.
Disadvantages of an SMSF
-
SMSFs require members to be hands-on — there is a need for members to always do their research regarding investment options.
-
SMSFs have no access to government compensation schemes.
-
It can be hard to access dispute resolution bodies with an SMSF.
Is it possible to have both an SMSF and an industry fund?
If you want the best of both worlds, you can certainly have both an SMSF and an industry fund.
While there are no laws prohibiting Australians from getting involved in an SMSF and an industry fund, you must take into account the fees and charges involved in both — you do not want to potentially reduce your overall retirement income due to unnecessary fees.
It is highly encouraged to talk to a financial adviser to know your options better and find the one that fits your investment strategy and plans for retirement.
Need Expert Advice? Contact Loanbox!
Making the right choice can save you money and help you achieve your financial goals sooner. If you're unsure which option best suits your needs, the team at Loan Box is here to help. We can provide personalized advice based on your specific situation.