Superannuation explained & When can you access the funds held in your super?
A pension fund is a fund that accumulates capital to be paid out as a pension for employees when they retire at the end of their careers. Pension funds typically aggregate large sums of money to be invested into capital markets, such as stock and bond markets, to generate profit (returns). Share investing is highly volatile, along with the superannuation provider charging high account-keeping fees, giving you a nominal annual return on funds held in your super; the net profit historically has been seen to be around 4-6%, as you have no visibility of how your super is travelling daily.
Sometimes, you can access your super fund before retirement, but only when facing financial hardship. Otherwise, you’ll have to wait until your preservation age, which is between 55 and 60 years, depending on the year you were born.
You can access part of your super if you reach your preservation age but aren’t retired yet. Once you are fully retired or reach 65, you can access funds in your Super fund.
This lack of accessibility before retirement is part of the reason why investing in real estate with a self-managed super fund (SMSF) is appealing to many Australians, especially individuals who want to take more control of their wealth and retirement by investing in property. You may not be able to use your super savings to buy property, but with an SMSF, you can use your super funds to purchase an investment property that is serviced by the rental income, employer’s contribution & any additional contribution you can contribute to your SMSF that will help save & reduce pay down this SMSF Mortgage well before the expiry of the mortgage term.
You can take control of your super and invest your super funds the way you want rather than your superannuation provider. Just by moving funds from your super to a self-managed super fund (SMSF) account, you have the option to choose from a panel of SMSF lenders. You can also invest in properties that help you support your financial and retirement goals.
Real estate is known for being a more stable investment than shares and a more lucrative investment than the bond markets. With an SMSF loan, adding the rental property to your assets is possible without saving up for a large deposit outside your retirement savings. Nor do you have to worry about a lender determining that you can’t service an investment loan because you may still be paying off your home mortgage, you’re too close to retirement, or you may have an outstanding balance on a different investment loan. Self-managed super funds (SMSFs) have become an increasingly powerful tool for Australians to maximize their super and build a solid asset base for future financial security. With the Australian property market continuing to demonstrate resilience and long-term potential growth, demand for SMSF loans continues to rise. We have a panel of lenders who can assist with buying a property in SMSF with a tailored loan solution designed to help borrowers seize the current market momentum and provide the flexibility and security that traditional finance lenders often overlook or are simply unable to offer to assist you in maximising your super that will assist you maximize property capital growth in having a secured financial future.
Step-1: Purpose:
SMSF loans can only be used to purchase or refinance residential or commercial property for investment purposes within the superfund.
Step-2: Legal SMSF Structure:
This must be undertaken through a limited recourse borrowing arrangement (LRBA), meaning a separate Trust & Trustee known as a custodian, which must be set up to minimize risk to other assets within the SMSF.
Step-3: Ownership:
SMSF loans are taken out by the SMSF trustee (s), and the property purchased is owned by the fund, not by an individual (s).
Step-4: LRBA (Limited Recourse Borrowing Arrangement):
It is one of the biggest & most valuable arrangements to protect all the assets held in the fund, preventing the lender from seizing any assets beyond the property purchased & secured by a loan.
Step-5: Sole Purpose Test:
The sole purpose is to provide retirement benefits to SMSF members. Any rental income or capital gains from the property are to be reinvested back into SMSF and can only be accessed at retirement.
Step-6: Loan Repayment:
Loan repayments must be made from the SMSF’s Assets, viz. Employer’s super contribution/s & rental income, as well as any dividends earned from shares held or additional super contributions.
Step-7: Regulation:
SMSF loans are subject to stricter regulations & compliance/ auditing requirements by ATO & APRA.
Step-8: Property Management:
A Residential Property must always be managed at arm’s length, meaning it should be rented out at market rate and cannot be rented out to the trustee, family, friends, or even managed by anyone known to the trustees. All income and expenses are administered through the SMSF.
Whether you’re looking to invest or refinance an existing SMSF loan, we can help you find & tailor any mortgage solutions for residential and commercial properties, either in Personal or SMSF. For a personalised consult, we invite you to connect & discuss your financial goal and everything about SMSF Lending Solutions—DBIJ Finance Pty Ltd.