About Self Managed Super Funds
It is most common for a couple to establish a Self Managed Super Fund together, and bring their superannuation assets from other super funds (retail super funds, industry super funds etc) into the SMSF to allow them to self-manage their superannuation assets.
Importantly, a Super Fund - whether a public offer fund or your own Self Managed Super Fund, must exist only to provide retirement benefits or death benefits for the members of the fund. This is known as the Sole Purpose Test.
In all cases, funds in the superannuation system are tied up until the member meets a condition of release. This applies equally to public offer funds and SMSFs.
People generally opt for self managed superannuation if they want to have more control over their investment assets and costs. It is quite common that people would have a SMSF because their accountant recommended they should.
What do Self Managed Super Funds look like?
- An SMSF will have less than five members
- The Trust Deed is the book of rules for that fund
- Each SMSF member is also a trustee of the fund
- No member of the SMSF fund is an employee of another member, unless they are related
- The Self Managed Super Fund is registered with and regulated by the Australian Tax Office,
- You develop and maintain your own investment strategy.
Important things to consider about SMSFs
A Self Managed Super Fund can cost you more
Some members consider a SMSF to cut running costs – however, in many cases it can cost you more to self manage your superannuation, depending on how much you have in your super fund. We’ve had members that have moved to a SMSF, only to cancel it after a year and move their super back into BUSSQ, due to the high running costs which cut into their super returns. See below for information on self managed super funds running costs.
You need to know superannuation
You need a good knowledge of the superannuation system to make sure you do the right thing for the fund members. The ATO regulates this to ensure all trustees are compliant and penalties can apply.
It is a requirement that the self managed super fund trustees are up to date with superannuation legislation to ensure that the fund does not break the rules. It is likely that you will need to outsource some of this in order to ensure you keep within the strict legal framework – which of course adds to the overall costs of running the SMSF. If you’re not into paperwork or forms, this will be a large job and it will be more likely that the fund would become non-compliant - meaning the highest rate of tax is applied to the fund instead of the concessional 15% maximum.
You need to be experienced at making investment decisions
You need to be experienced in making solid investment decisions, as you’ll want to get the best return for yourself and the members of the SMSF. Doing proper research can be quite complex as there’s a lot of information out there.
A team of professional fund managers and analysts will most likely outperform an individual amateur investor over the medium to longer term. Even if you have a reasonable amount of knowledge, the sheer size of funds professionals deal with allows them to open doors that you as an individual cannot enjoy.
It is likely that SMSF trustees will not consider an appropriate investment strategy, and favour short-term investments at the cost of the benefits of medium to longer term returns. Cash is the second largest investment choice in SMSFs. Check the chart to compare the running costs of a SMSF vs the BUSSQ Cash option – even with a balance over $1 million, it will generally be cheaper to run a BUSSQ industry super fund than in a SMSF if you are favouring cash.
It is a requirement that the Trustees consider all members of the self managed super fund when structuring an investment strategy – it is likely that one member will retire at a different time to another, each of which will have different needs. The skill required to manage this, along with monitoring investment markets is one that takes some time to master.
We all love to talk about our gains and tend to ignore our losses when we are investing ourselves – but this can’t happen when you are a trustee of a SMSF. You have to report the self managed super funds actual fund’s net performance including any losses that the fund has made. The net return will also have to include any unrealised capital gains tax liabilities – this, amongst other things, will reflect the net benefit available for each member of the self managed super fund.
A SMSF is still bound by the rules of superannuation investing
Many people think having a SMSF allows them to access their super and do what they want with it, such as buy a holiday house or a boat that they can use now; but this is not the case. The money in the Self Managed Super Fund needs to be held in trust on behalf of the members and used for the sole purpose of providing retirement and death benefits.
There are a lot of obligations as you are the Trustee
It is a requirement by law that a super fund trustee must responsibly manage the super fund solely for the benefit of its’ members. Doing it properly is a difficult job, and involves a lot of time and sometimes cost. If you’ve never done that sort of thing before, or if paperwork, forms and legislation are not your strength, then managing your own may not be for you.
Lack of protection
Industry super funds like BUSSQ are regulated by APRA (Australian Prudential Regulation Authority) which means you have access to special compensation schemes to protect you. You don’t have the same protection with a Self Managed Super Fund which puts you at a higher risk from fraudulent and unscrupulous activity.
How much does it cost to run a SMSF?
Many think that running their own SMSF costs practically nothing. But this is far from the case. By way of comparison, have a look at how much it costs for the running of a SMSF vs BUSSQ – we’ve used the Balanced Growth and the Cash options in BUSSQ to give you an idea.
So using these figures, let’s compare roughly what it costs between running a SMSF and having your super in BUSSQ:
|$ Amount in Account
|| SMSF %
||SMSF Fees (per annum)
||BUSSQ Balanced Growth
Fees (per annum)
1.09% + $117 pa admin fee
| BUSSQ Cash
0.27% + $117 pa admin
* Indicative cost only
As you can see for smaller balances running a SMSF is very expensive. Remember you need to factor these costs in when looking at your returns.
We’ve used the BUSSQ Balanced Growth fund and Cash fund because they’re the more popular selections with our members. Also, according to the ATO research the most common investment area is equities, followed by cash.
It is clear that the more you have in an SMSF, the lower the overall costs, as you will have economies of scale. However the savings do plateau out after a certain point – there’s not much difference in physical costs to run a $200,000 fund or a $2,000,000 fund - but with a bigger balance the proportional cost reduces.
My accountant said I should have a Self Managed Super Fund, so I reckon it's a good idea.
In some cases, managing your own super with a SMSF may be perfect for you. However in many cases we have found that the fund is not used to its’ fullest advantage and is often lacking in a number of areas. More often than not, if your accountant has suggested you start up a SMSF they have also suggested that they would happily provide administration and audit services too. This can be a great source of revenue - for them.
We've come across people who have been talked into a self managed super fund but the current fund is subject to restriction, meaning they can’t roll over the super until they resign from their role - something they hadn't planned on doing any time soon. As you can see from the table above, it can be expensive to set up a SMSF.
Should I opt for a self managed super fund?
At the end of the day, the decision on whether or not to manage your own super is an individual one based on your personal circumstances and needs. It can be very costly if you get it wrong, so do your research first.
For more information on self managed superannuation go to the ASIC (Australian Securities and Investments Commission) Moneysmart Self-managed Super fact sheet.
If you want to speak to a financial advisor to assess your superannuation options call us on . A fee will apply for this complex advice. For more information see Advice.
If you already have a SMSF and would like assistance winding it up, just call us on 1800 MY BUSSQ (1800 692 877) and we'll assist you.