Self-managed super fund (SMSF)

A self-managed super fund (SMSF) is a private super fund that you manage yourself. SMSFs are different to industry and retail super funds.

When you manage your own super, you put the money you would normally put in a retail or industry super fund into your own SMSF. You choose the investments and the insurance.

Self managed super fund SMSF

Your SMSF can have no more than six members. As a member, you are a trustee of the fund — or you can get a corporate trustee. In either case, you are responsible for the fund.

While having control over your own super can be appealing, it’s a lot of work and comes with risks. 

Only set up your own super fund if you’re 100% committed and understand what’s involved.

The risks and responsibilities of SMSFs

All members of an SMSF are responsible for the fund’s decisions and for complying with the law.

These responsibilities come with risks:

  • If you lose money through theft or fraud, you won’t have access to any special compensation schemes or to the Australian Financial Complaints Authority (AFCA).

  • You are personally liable for all the fund’s decisions — even if you get help from a professional (such as a financial adviser, accountant or legal professional), or if another member made the decision.

  • Your investments may not bring the returns you expect.

  • You are responsible for managing the fund even if your circumstances change — for example, if you lose your job.

  • There may be a negative impact on your SMSF if there is a relationship breakdown between members, or if a member dies or becomes ill.

  • You could lose insurance if you’re moving from an industry or retail super fund to an SMSF. See consolidating super funds.

The ATO has more information on the key responsibilities for SMSF trustees. 

SMSFs take time and money

Managing an SMSF is a lot of work. Even if you get professional help, it’s time-consuming.

You need enough time to set up the fund, and time to manage ongoing activities, such as:

  • researching investments

  • keeping up to date with changes in superannuation and tax laws

  • setting up and reviewing an investment strategy

  • accounting, keeping records, and arranging an audit each year by an approved SMSF auditor

SMSF trustees spend on average more than eight hours a month managing an SMSF. That’s more than 100 hours a year. (Source: SMSF Investor Report, April 2021, Investment Trends)

Set-up costs

The set-up and running costs of an SMSF can be high. Ongoing costs can include:

  • investing

  • accounting

  • auditing

  • tax advice

  • legal advice

  • financial advice

  • insurance premiums

Some costs may be tax deductible, but most will be out-of-pocket expenses for the SMSF.

You don’t have to set up an SMSF to choose your own investments. See super investment options.

You need financial and legal knowledge

You need the financial and legal knowledge and skills to:

  • set and manage an investment strategy that meets your risk-tolerance and retirement needs

  • comply with tax, super and investment laws

  • arrange insurance for fund members

  • understand different investment markets, and build and manage a diversified investment portfolio

Be wary of anyone who offers to set up an SMSF to withdraw your super to pay off debts. It’s illegal. See superannuation scams.

SMSF starting balance

When making the decision to set up an SMSF, it’s important to focus on the overall suitability rather than just the starting balance of the fund. 

An SMSF with a lower starting balance may be suitable for you if, for example:

  • you are willing and able to do most of the administration and management of the SMSF yourself

  • a business property, an inheritance, or funds from another superannuation account will be added to your SMSF

There may also be circumstances when an SMSF with a higher starting balance is not suitable for you because it does not meet your objectives, financial situation or needs. 

For example, you may not have the skills, time or experience to be an SMSF trustee. 

ASIC has prepared case studies to help you work out if an SMSF is suitable for you based on your superannuation balance. 

When a SMSF might be suitable for you

Some indicators that an SMSF might be suitable are:

  • you are willing to play an active part in managing your financial affairs

  • you have a good understanding of your role and responsibilities as an SMSF trustee

  • setting up an SMSF will help you achieve your goals and objectives, and

  • setting up an SMSF would be cost-effective for you.

The ATO has information about SMSF expenses by fund size.

If you want to set up an SMSF

If you are 100% sure about managing your own super fund, start researching investment options. Also, consider getting advice – you can reach out to us.

Research your investment options

Part of the appeal of an SMSF is controlling and having access to a broader range of investments.

However, there are some very strict rules about what you can invest your super in. Check restrictions on investments on the ATO website.

Get professional advice

Professionals like SMSF auditors, accountants and lawyers can help you with an SMSF. However, these professionals may be limited to the kind of advice they can give you.

A licensed financial adviser with specialist SMSF knowledge can help you:

  • make an informed decision about whether an SMSF is right for you

  • set up and run your SMSF

  • decide on an appropriate trustee structure for your SMSF

  • understand the penalties for SMSF non-compliance

Financial advice about setting up an SMSF should always include information about:

  • why an SMSF is suitable for you and how it will help you achieve your retirement savings goals

  • the risk and costs

  • the potential benefits you may lose

  • your compliance responsibilities and any penalties for non-compliance

  • the skills, knowledge and time commitment you need

Set up your SMSF

All SMSFs are regulated by the ATO. The self-managed super funds section of the ATO website explains what you need to do to set up your fund. 

How you structure your SMSF is also important as this can impact your compliance obligations.

There are two types of structures you can choose for your SMSF: individual trustees or a corporate trustee. The ATO has more information about the obligations for each structure.

Talk to us if you have any questions.

Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/how-super-works/self-managed-super-fund-smsf

Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.

Important
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Share this post

team

CFP® Dip FP
Authorised Representative 298494
Interprac Financial Planning Pty Ltd 

Darryl Jopling

Senior Adviser

I have worked in the financial services industry since 1982 and as a Financial Adviser since 1999.

I have worked for large Financial Planning businesses, Membership based organisations and looked after the financial planning needs of clients within an Accounting Practice before starting my own business.

I am married, have 4 older children and a grandson and I am keen golfer with mixed results like many .

I have been through many of the strategies I talk with clients about myself and with my family.

I have been through the journey of seeing my parents move into Aged care and negotiated the difficulties and pitfalls of understanding the system for them and this gives me an excellent insight into what is required to assist families at this difficult time.

In a previous roll I used to run retirement seminars looking at Centrelink and Retirement Incomes and how to make these work for you. I have helped many of my clients with Aged Care advice when their parents needed to move into Nursing Homes. For many clients I assist them with superannuation, building wealth and protecting their loved ones with insurance.

I am supported by his, Licensee, Interprac Financial Planning’s in-house resources and ongoing technical, systems and training.

I am committed to understanding your needs and identifying strategies and products to help you achieve your goals.

My guiding principle as an Adviser is to design plans which help to provide my clients with clarity of purpose and the opportunity to build a solid financial foundation.
I will take the time to listen, explain things clearly and keep you informed throughout the advice process.

My experience is complemented by professional qualifications including:

  • Certified Financial PlannerTM Professional
  • Diploma of Financial Planning

At Choice Financial Advice we work with you along the way on life’s journey.

Whether you are getting married, starting a family, embarking on the trip of a lifetime, planning to enjoy your years after work or assisting elderly parents with Aged Care and Nursing Home placements, we can help.