Why More Australians Are Turning to SMSFs?

Published 23 February 2025

Why More Australians Are Turning to SMSFs?

Self-Managed Superannuation Funds are becoming an increasingly attractive option for Australians looking to manage their retirement savings. The main driver behind this shift is the desire for more control over investments. Unlike traditional super funds, where the fund manager makes decisions about your money, SMSF members take charge of their own retirement portfolio, making investment choices that align with their personal goals and risk tolerance.

This surge in popularity raises the question: what is driving Australians to embrace SMSFs over traditional superannuation options?

With many Australians dissatisfied with the performance of their traditional super funds, SMSFs offer an alternative. Research from APRA has shown that some super funds are underperforming, with one in five flagged for poor returns. This has prompted a significant number of people to explore SMSFs as a way to ensure better control over their financial future.

Benefits of SMSFs

  1. Investment Flexibility
    One of the major attractions of SMSFs is the ability to choose from a broad range of investment options. This includes residential and commercial property, shares, bonds, and managed funds. With an SMSF, you have the freedom to tailor your investment strategy to suit your needs, goals, and risk appetite. Whether you’re looking to invest in property or diversify your portfolio with shares, SMSFs offer more flexibility than traditional super funds.

  2. Property Investment
    Investing in property through an SMSF has become especially popular. SMSFs allow members to purchase both residential and commercial property, which can provide long-term capital growth and rental income. According to the Australian Taxation Office (ATO), SMSF property investments grew by 26.4% to $55.2 billion for residential property and by 25% to $102 billion for non-residential property between June 2021 and 2024.

Property is considered a stable and tangible asset compared to shares or managed funds, which can fluctuate. Moreover, with rental income generated from property investments being tax-advantaged, SMSFs present an attractive option for those seeking secure, long-term retirement savings.

  1. Tax Benefits*
    SMSFs also offer tax advantages. Investment income generated within the fund, such as dividends or rental income, is typically taxed at a lower rate than individual income. Additionally, capital gains from assets held for over a year are subject to favorable tax treatment. For property investors, interest on SMSF home loans is tax-deductible, adding another layer of potential savings.

  2. Greater Control and Transparency
    Unlike traditional super funds, SMSF members have complete control over how their money is invested. This transparency allows members to make informed decisions and adjust their strategies based on changing market conditions or personal preferences. Whether you’re an experienced investor or a beginner, SMSFs offer the ability to implement a strategy that’s aligned with your retirement goals.

Key Considerations When Setting Up an SMSF

While SMSFs offer several benefits, here are some important factors to keep in mind when considering an SMSF:

  1. Compliance with Regulations
    SMSFs must adhere to strict rules and regulations set by the ATO. This includes the sole purpose test, which requires the fund to be used exclusively for retirement purposes, and rules surrounding investments, borrowing, and related-party transactions. Non-compliance can lead to penalties, so it’s essential to stay on top of regulatory requirements.

  2. Costs Involved
    Running an SMSF comes with costs that can include setup fees, ongoing administration, and investment management fees. While SMSFs offer flexibility and control, it’s important to weigh these costs against the potential benefits. In some cases, SMSFs may not be cost-effective for smaller super balances.

  3. Time and Expertise
    Managing an SMSF requires time and expertise. You’ll need to regularly monitor investments, ensure compliance with regulations, and make decisions about asset allocation. For those who lack the time or experience to manage their fund, it may be worth seeking professional advice or outsourcing the management to a specialist.

  4. Risk Management
    Like any investment, SMSFs carry risks. Market fluctuations, poor-performing assets, and tenant issues with property investments can impact the fund’s performance. It’s essential to have a solid risk management strategy in place and diversify your investments to reduce exposure to any one asset class.

Is an SMSF Right for You?

An SMSF can be a powerful tool for Australians looking to take control of their retirement savings, especially for those who are experienced investors or want to invest in property. However, it’s not for everyone. Before deciding if an SMSF is the right move for you, it’s essential to assess your financial situation, risk tolerance, and level of expertise.

If you’re considering setting up an SMSF or investing in property through your SMSF, it’s highly recommended to seek professional advice from financial planners, tax specialists, and mortgage brokers. At Manage Your Loans, we specialise in helping clients navigate the complexities of SMSFs and property investment. Our team can provide tailored advice to help you make informed decisions in conjunction with your financial planner or tax specialist ensuring your strategy aligns with your long-term financial goals.

Get in touch with Manage Your Loans today to book a consultation. Together, we’ll create a roadmap to help you achieve your retirement goals.

*Disclaimer: This information is for general guidance only and does not constitute financial advice.