Superannuation is something most Australians are familiar with. It’s mandatory for employers to contribute a portion of your wages into a complying super fund, which is then invested to grow over time, ensuring you have a nest egg for retirement. Typically, we rely on external super funds to manage these investments, and there’s a wide range of options available—from low-cost funds to more tailored solutions.
But what if you prefer to take the reins yourself? A Self-Managed Super Fund (SMSF) offers that possibility, allowing you full control over your superannuation investments with the ability to pool your super with other family members, for example, with your spouse. However, managing an SMSF comes with its own set of responsibilities and costs, which aren’t trivial. The primary advantage of an SMSF is the ability to directly control the assets in your fund, such as purchasing direct property using your superannuation savings.
According to recent data from the Australian Taxation Office (ATO), as of 30 June 2023, SMSFs accounted for 25% of all superannuation assets in Australia, with around 610,000 SMSFs in operation. The flexibility and control an SMSF offers can be appealing, particularly to those who want more say in how their retirement funds are invested. But before you dive in, it’s crucial to weigh your options carefully.
For example, some retail super funds offer the ability to invest in direct shares and ETFs. So, if your primary motivation for starting an SMSF is to invest in these assets, you might not need an SMSF after all.
Taking control of your super through an SMSF might sound empowering, but it’s important to consider the following:
- Costs: Managing an SMSF isn’t cheap. There are set up costs, as you will need to establish a trust deed and pay registration fees. There are periodic licensing and regulatory fees. Additionally, you’ll require an Accountant to handle annual tax returns and audits. Generally, managing your own super becomes cost-effective only when your fund has substantial assets—typically at least $250,000. With less than this amount, the fees outweigh the benefits when compared to sticking with a traditional super fund. And to match the long-term performance of many external funds, it might warrant even more.
- Protections: Running your own SMSF means losing some of the protections offered by external super funds, such as safeguards against theft or fraud. If you make a poor investment decision, the financial loss is entirely yours to bear. Additionally, managing an SMSF could impact your insurance coverage for premature death or disability. In addition, without adequate knowledge of superannuation legislation, a mistake could prove costly as the ATO can apply penalties for breaches, whether intentional or not.
- Time Commitment: An SMSF demands significant time and effort. The government estimates that SMSF trustees spend over eight hours a month—more than 100 hours a year—managing their funds. This is a serious time commitment, especially if you’re balancing other responsibilities.
While an SMSF might offer greater control and flexibility, it also requires substantial time, knowledge and financial resources. The potential downsides are significant, so it’s advisable to seek professional financial and taxation advice before deciding to establish your own fund.
