SMSF vs Retail Superannuation - What is the difference?
In the world of Superannuation, many Australians opt to use Self-Managed Super Funds as a means for saving for their retirement but many ask the question, is this a suitable product for them? Would a Retail Superannuation fund be a more suitable option, particularly for transferring a UK Pension?
To cover every difference between both types of Superannuation would require a separate book so in this article, we will only outline the fundamental difference in structure between a Self-Managed Super Fund (SMSF) and a Retail Superannuation Fund.
Self Managed Super Funds (SMSF)
As it states in the title, an SMSF is a Self-managed fund, meaning that the ongoing administration, financial reporting and investment decisions are your responsibility as Trustee of the fund. An SMSF carries a significantly higher level of legal responsibility and ongoing management than a Retail Superannuation fund and due to the complexity of them, it is essential that you have a thorough understanding of how they work and the legislative requirements of managing them.
Many individuals, mainly sophisticated and experienced investors, prefer to have this level of control and responsibility and have a firm understanding of what is required to manage the SMSF correctly.
However, many individuals would rather not have this responsibility and therefore outsource the day to day management of the fund through an accountant or financial professional. In many cases, this can be very expensive and not cost effective, particularly if the fund does not have a large value. When outsourcing the management of the fund, you must also ensure that the third party manages your fund correctly because ultimately, as trustee, you are accountable if compliance and management guidelines are not met, resulting in potential fines from the regulator.
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Additionally, the process of setting up an SMSF is not at all simple and comes with many technical complexities. If you are looking to transfer your UK pension to your SMSF, then in order for your fund to accept UK Pension monies, you must first apply to HMRC in the UK to register your fund as a Qualifying Recognised Overseas Pension Scheme (QROPS), which not straight forward and can be time-consuming.
For more information on Self-Managed Super Funds, view our article What is an SMSF?
You can also view the Australia Tax Office guidance for setting up an SMSF HERE.
Retail Superannuation Funds
Retail Superannuation Funds like our Australian Expatriate Superannuation Fund are very similar to the structure to a UK Personal Pension plan in that all of the ongoing day to day administration and management is handled by us as the provider and not you. This removes the administrative and time burden away from you as the investor.
Compliance and management reporting responsibilities are also handled by us, the same way Personal Pension Plans operate in the UK. You also do not need to worry about the complex set up process and QROPS registration with HMRC, in order for your fund to be able to accept your UK pension monies, this is all in place with our Retail Fund.
The key difference in structure between both funds may be a reason that we are seeing cases where individuals are opting to set up a Retail Superannuation fund over an SMSF, particularly those who are transferring a UK pension to Australia, as it is a simple set up and transfer process in comparison to an SMSF.
Many people also prefer to save for their retirement in a secure product without the ongoing administrative headache that may come with a Self-Managed Super Fund. We are finding that most people we talk to would favour the structure of a Retail Fund over a Self-Managed Fund, once it has been explained to them.
For more information regarding Retail Superannuation Funds, check out our guide HERE!
What is the best option for you?
So you are now probably wondering why would someone want to set up an SMSF instead of a Retail Superannuation Fund, only to be faced with much more management responsibility, potential liabilities, heavier administrative duties and the requirement to have a thorough understanding of Superannuation and the financial markets?
There are of course advantages to both products but it all really boils down to your circumstances, preference and investment objectives. As mentioned, some people may prefer to avoid the administrative responsibilities involved with Self-Managed Super Funds, where others may not. There may be cost advantages of using a Retail Super fund, depending on the amount of money you are transferring to Australia.
We are not authorised to provide you with any personal or financial advice so we cannot tell you which product suits you best, we can only provide general advice on your options. You should seek financial advice from a qualified Financial Adviser to understand the best advice option for you based on your circumstances.
If you would like to find out more about Retail Superannuation Funds or have any questions regarding UK Pension transfers to Australia, contact a member of our team today and we would be happy to answer any questions that you may have.
This article does not contain personal or financial advice. It is provided for general information only and does not take into account your personal objectives, financial situation or needs. IVCM is not authorized to provide you with any personal or financial advice.
If you require financial any advice then you must make sure that you obtain advice from a suitably qualified financial adviser.