What is a self-managed super fund?
A self-managed super fund, or SMSF, is an ATO-approved super scheme that is managed by the individual or personally appointed trustees, not by a professional, regulated super fund. That’s to say, it’s superannuation that’s self-managed by and for the beneficiary and is subject to specific rules of operation.
The trustees of the fund manage it, while the members are its beneficiaries. In many cases, the trustees and the members are the same people.
The rules and regulations are set down by the ATO to maintain the integrity of the scheme and define what you can invest in, how and when you can access any investment returns and the information and external audits that you need to provide to the ATO.
Is a self-managed super fund right for me?
While having control over your own super may sound appealing, it is not for everyone as recent statistics show – in Australia just under 28,000 SMSFs set up each year but over 15,000 are wound up. The results from an SMSF, compared to a normal super fund, are dependent on a number of factors, including financial expertise, time, and initial deposit. The lower the balance in an SMSF, the harder it is to make a good return.
Source: ISA Analysis, ATO SMSFs - A Statistical Overview 2020-21.
What is involved in an SMSF?
The ATO has strict requirements for setting up and running an SMSF, such as drafting trust deeds, choosing trustee structures, the assets the fund can invest in, and what sort of reporting needs to be done. Then of course there’s the researching, buying, holding, and selling of investment assets.
So, to be successful, you’ll need to have a solid understanding of both how to fulfill the SMSF obligations and how to make sound investment decisions.
Alternatively, there are professional SMSF managers who can provide advice and administer the fund for you, but their fees do add to the costs of running an SMSF.
ATO and APRA data shows that industry super funds have outperformed all SMSF fund size categories on an annualised basis apart from those over $5m.*
Source: ISA Analysis, ATO SMSFs - A Statistical Overview 2020-21, APRA Annual Superannuation Bulletin, June 2022.
Note: Please see the footnote on conditions applicable to this comparison.
Tips for success with an SMSF
If you decide that an SMSF is the better option for you, these simple tips could help you make the most of your DIY efforts.
- Know what you’re doing or be prepared to learn. Managing an SMSF can be tricky and full of confusing obligations. You will either need to have a really good understanding of how to meet all the obligations, be willing to learn, or be comfortable paying professionals to do the work for you. Those professional fees can soon add up and, year after year, the costs of running your SMSF can turn out to be more expensive than if you invested your money in a regular super fund.
- Start with a big enough balance. An opening balance of at least $200,000 is often cited as the minimum needed for an SMSF to be competitive.
- Engage professionals. An experienced SMSF manager can assist with running the operations of your fund, while a licensed investment advisor can help you plan a sound investment strategy. Of course, both come at a cost.
- Have an efficient system for managing records and documents. You need to be prepared to show that all your investment decisions and reporting obligations are within the ATO’s rules for self-managed super funds. It’s vital that your SMSF administration is systematic.
- Meet with trustees regularly. Trustees can be individuals or a corporate trustee body (with separate rules governing each type), and since it’s the trustees who are in charge of the SMSF, then it’s important they meet with each other regularly.
- Review investment strategies periodically. Circumstances change, whether that’s the personal circumstances of the members or wider economic conditions. Therefore, trustees should schedule regular reviews into the investment strategies and holdings to ensure they continue to align with the members’ objectives, years to their retirement, and risk profile.