A self-managed super fund (SMSF) is a private superannuation fund that individuals in Australia can manage themselves. These funds differ from industry and retail super funds, as they offer more control over investment choices and insurance options. However, managing an SMSF comes with significant responsibilities and risks.
The appeal of having control over your superannuation can be enticing, but it entails substantial work and potential pitfalls. It’s crucial to consider the following risks and responsibilities before setting up an SMSF:
Losses without Compensation: Unlike retail and industry funds, SMSFs lack access to special compensation schemes or the Australian Financial Complaints Authority (AFCA) in case of theft or fraud-related losses.
Personal Liability: All members of an SMSF, even if they receive professional assistance or another member makes decisions, are personally liable for the fund’s actions.
Investment Returns: The returns on your investments may not meet your expectations, and you are solely responsible for managing and optimizing the fund’s investments.
Changing Circumstances: You must manage the fund even if your personal circumstances change, such as losing your job.
Member Events: Events like relationship breakdowns between members, the death of a member, or a member’s illness can negatively impact your SMSF.
Insurance Considerations: Transitioning from an industry or retail super fund to an SMSF may result in a loss of insurance coverage, which should be carefully considered.
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