What exactly is a self-managed super fund?

If you want more choice over your super, here’s what you need to know about SMSFs.
A self-managed super fund is more hands-on than most other superannuation options in Australia.Getty

Most Australians have at least one retail or industry super fund, where your employer (and you) can contribute towards your retirement income. But a self-managed super fund (SMSF) is another option that gives you more control over the money and account features.

“A self-managed super fund means you are taking control of your own superannuation,” licensed financial advisor and author James Millard tells The Australian Women’s Weekly.

This means you can choose how the funds are invested and the insurance. You can also add a total of six members to a SMSF.

“This might sound attractive in theory but it comes with significant cost and added responsibility,” James says.

“You you become the trustee of your own super fund and are responsible for reporting to the tax office every year [with a SMSF]. This means an extra tax return and other reporting requirements.”

How much value is in SMSFs?

According to data from the Australian Taxation Office (ATO), there are 1.146 million members of SMSFs and $913.7 billion of estimated assets.

As a rough guide, that works out to an average of around $797,294 per SMSF member.

To put that in perspective, the Association of Superannuation Funds (ASFA) Retirement Standard for a comfortable retirement at 67 years of age is $595,000 as a single person or $690,000 as a couple.

A self-managed super fund offers more control over investments but can also require more time and professional support than other funds.

What are the risks of having a self-managed super fund?

It’s clear there can be value for SMSF members. But there are also a lot of risks.

As licenced financial advisor and author Helen Baker explains “[it] is not your own investment to tap into. You must still meet all the superannuation legislation.”

She says one risk is keeping all the funds in cash, rather than making appropriate investments.

“You should still work with an adviser on the investments and nominations and insurance and ensure you meet audits. So there are some additional costs to consider.”

But Helen says one of the biggest SMSF risks is that “the ATO can be entitled to take half the value of the fund” if you make a mistake or breach requirements.

This means you may need to pay for financial advice, legal advice, accounting and other costs when you have a SMSF.

In fact, the government’s Money Smart website states you should “only set up your own super fund if you’re 100% committed and understand what’s involved.”

When could a self-managed super fund make sense?

SMSF typically require more time, financial knowledge and professional support than industry or retail super funds. So they don’t suit everyone but can be valuable in certain situations.

“SMSF can be helpful if you have a business and you own the premises the business is run out of,” Helen says.

“They can also be beneficial if you wish to invest in assets not normally found in an industry fund or retail fund. For example, art, wine, vintage cars, even some crypto.”

There are also more potential out-of-pocket costs with SMSF than other super funds as you’re responsible for making sure you meet all the financial and legal requirements.

So high-wealth individuals and people with the specific knowledge and skills to manage a fund are typically more likely to consider a SMSF.

“People think of super as an investment but it is in fact a tax structure, and you invest within it,” James explains.

How is a SMSF set up?

All SMSF need to be properly registered with the ATO.

The ATO website has a detailed guide on the process you need to follow, which includes appointing trustees, getting an Australian Business Number (ABN) for the fund and opening a bank account.

The ATO also recommends meeting with a licensed financial advisor before you start the process to help decide if it’s right for you.

You can make choices about your superannuation even if you don't have a SMSF.

What about other super funds?

SMSF only make up a small proportion of superannuation funds in Australia. Retail and industry super funds are actually the most common.

With these funds, the investment options are managed for you. But you can still make some choices around the type of investments – many funds have several options you can choose from. And if you’re not happy with a retail or industry super fund, it’s relatively simple to switch to another one.

Public sector and corporate funds are also available through some employers. These are less common but may have details of the specific benefits available through them.

So even if you don’t have a self-managed super fund, you can still make choices about your superannuation.

You can even start with something as simple as reviewing your current super account. Or, using myGov to make sure that you only have one account.

It’s also worth comparing other funds to make sure you’re happy with the fees, returns and features.

But if you want a more in-depth plan for your finances, another option is to meet with a licensed financial advisor to develop a financial plan for your goals.

*This article contains general advice only and may not be suitable for your circumstances. Make sure you seek financial advice appropriate to your individual circumstances before making decisions.

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