Building your superannuation

There are four basic structural types of superannuation funds as shown below:

For clients with higher fund balances, the Master Trust or Self Managed Superannuation Fund (SMSF) options are alternatives likely to satisfy more of the criteria detailed above. However, it is important that you understand all aspects of each fund type and not focus on one specific aspect to the exclusion of all others.

We can help you make an informed decision on this important issue. We can also assist with the development and ongoing management of your contribution plan, investment strategy and pension payment plans that may apply across the various stages of your life.

It is important to ensure the investments you choose via superannuation are aligned with your strategic asset allocation and risk profile. The Master Trust and SMSF-type funds offer greater investment flexibility, including the option to incorporate direct equities and other alternate investment products (e.g. Hedge funds) into your portfolio.

These investment choices can be used to tailor an investment portfolio to your specific situation and potentially enhance your overall return. SMSFs also allow you to invest in direct residential property and business assets providing additional investment flexibility. However, as discussed under our section, there are many aspects to take into account when developing a well-diversified investment portfolio. Quality investment portfolios can also be constructed using the fully implemented manager-of-manager approach.

Superannuation has a very favourable taxation treatment, with Income Tax limited to 15% and Capital Gains Tax limited to 10% (for assets held for greater than 12 months) while in the accumulation phase. In addition to these taxes, deductible contributions to the fund are taxed at 15%. In the pension or retirement phase, there is no tax on either income or capital gains within the fund.

The Master Trust and SMSF structures provide additional flexibility to manage these tax liabilities compared to other ‘pooled’ superannuation funds. This is because the taxation liability is managed at an individual member level within the fund, as opposed to the overall treatment with a pooled-type fund.

The actions you take within the Master Trust and SMSF structures will therefore directly impact you. For example, if you invested in franked Australian shares, the associated franking credits can be used to offset both the Income/Capital Gains Tax and Contributions Tax. In the pension phase, you will receive a full credit for the franking credits as no tax is payable in this phase.

The SMSF structure also has the added advantage of being able to hold a specific investment asset throughout the accumulation and pension phase. While in the accumulation phase, any unrealised capital gain will be accruing as the value of this asset grows. However, the unrealised capital gains disappear as you take the asset across into the pension phase, thereby enhancing the after tax return of the fund.

These features are more beneficial for investors with a higher account balance and if you make or plan to make significant contributions to your superannuation fund.

To ensure your superannuation fund provides a retirement income that is appropriate to your situation now and in the long-term, it is important to consider the options and flexibility of the fund. You must also consider the cost structure and investment flexibility as, ideally, we do not want to change the pension stream once it is started.

Most quality superannuation funds can provide you with an appropriate solution for funding your retirement income. Some funds offer you a greater level of flexibility with your payment schedule and the ability to hold multiple accounts for an individual member.

As highlighted under our Estate Planning section, it is critical to understand that death benefits paid from a superannuation fund are not normally covered under your Will document. This means you need to make a binding nomination for your superannuation fund, otherwise the fund trustee will apply their rules and consider all potential beneficiaries.

Some funds, including SMSFs, do offer significantly more flexibility in estate planning by enabling you to include up to four family members within the fund. This can enable the fund to continue beyond the life of the deceased member with associated benefits. You also need to consider the taxation implications that may arise upon the death of a member. With good planning, these taxation liabilities can be reduced and, in some cases, eliminated.

As mentioned above, most quality superannuation funds can provide you with an appropriate solution for funding your retirement income, however, some funds offer a greater level of flexibility with your payment schedule and the ability to hold multiple accounts for an individual member. 

For some clients, online reporting facilities are an important feature. The superior funds offer 24/7 access to information, including your account balance, individual investment product performance and fees. This provides you with a high degree of transparency and confidence that your funds are secure.

Fund administration and investment manager fees can impact on the overall return of the fund. However, some investment managers may charge a higher fee but deliver a significantly higher-level of return. You should take this into account along with the flexibility to increase the after tax return by managing some of the taxation issues discussed above. The investment manager fee increases if you choose more active managers.

The fees charged by a superannuation fund are important, yet they are one among many issues that you should consider before finalising your fund selection. We will provide a thorough analysis of the fee structures associated with the various types of superannuation funds available and compare these to the fee structure for your existing superannuation fund(s) arrangements. We believe total transparency is essential regarding all aspects of fees and charges.