Difference between a Master Trust and a Self Managed Superannuation Fund.
If you are a little confused with the Super Fund system and it’s specialized terms, don’t worry you are not alone. Super co-contributions, self managed super funds, eligible termination payments, Super Guarantees and dozens more of finance jargon is a challenge for the most financially literate among us, never mind those of us that struggle understanding a balance sheet.
The tempting route is to pass on all the responsibility of choosing and managing your super fund to someone else. This might not be a bad solution, letting professionals help you out is often a smart choice. However it is good to understand the basics of super funds and the different options you have so that you know if you are making a good decision or not.
This is especially important when talking about the difference between Master Trusts and Self Managed Super funds so it is worth out time to get comfortable with the pros, cons and differences between each Super fund management system.
Super Funds.
A super fund is a pension saving scheme set up by the Australian government to help and encourage saving for retirement among the low and middle classes. These super funds receive deposits from employers (super guarantee payments, 9% of each month’s wage), super fund members (personal payments) and the government (super co-contributions) where the government matches every dollar saved by the member with $1.5.
The money deposited in the super fund is then invested in order to create interest to add to the basic pension savings. The main choices come when deciding how to manage these super funds. Investing money in today’s markets is no easy task. An in-depth understanding and specialized skills are required to make money, and even then there is a significant risk.
However the government has created a flexible system full of choice where you can choose from three main options in order to manage your Super Fund.
1) You can manage it yourself.
2) You can use an industry super fund.
3) You can use a master trust.
This article will focus on the difference between self managed super funds and master trusts.
Self managed superannuation funds.
With this system the trustees of the super fund (that would be you and maybe someone else) have sole responsibility for the investment and legal responsibilities linked to the super fund. If you do not follow your legal requirements you could be liable to prosecution or a hefty fine. However you have full control of your Super Fund investments deciding how and when to invest.
Master Trusts.
Master trusts offer an alternative for the super fund member that wants control of his super fund investment but does not want to or does not have the knowhow to take full control and responsibility of their super fund. Master Trusts will take on all the administrative and legal task linked to managing a super fund while still providing a lot of choice to members in how they invest their super.
Another reason people are attracted to Master Trusts is the price. Master Trusts work as wholesale Super Funds providing a discounted price when compared to industry super funds. Some Master Trusts will even share the commissions they receive from investment funds with the member.