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Self-managed superannuation funds (SMSFs) are private superannuation funds with no more than six members that you can set up yourself. Your employer will pay your superannuation guarantee into your SMSF, instead of a larger retail or industry fund, and you will be responsible for managing the investments in the fund, around which there are strict rules and regulations.
According to the latest Australian Taxation Office (ATO) SMSF statistics for 2023, there are 606,217 SMSFs in Australia managing $889.5 billion in assets.
How Does an SMSF Work?
SMSFs can have no more than six members and each need to be trustees of the fund, or if run under a corporate trustee structure, members must be directors of the corporate trustee.
Like any other superannuation fund, SMSF member trustees or corporate trustees must run their fund for the sole purpose of providing retirement benefits, as outlined in the Superannuation Industry (Supervision) Act 1993 (SIS Act).
Members’ superannuation funds are paid into their SMSF, and members are responsible for investing those funds appropriately. They must have an investment strategy that takes into account the risk profiles of all members, and which needs to be relevant to the specific circumstances of the fund and its six members.
According to the latest ATO data, SMSF members are heavily invested in equities. The top asset type held by SMSFs by value are listed shares at 29% of total SMSF assets and cash and term deposits at 15%.
How To Set Up a SMSF
There is a lot involved in setting up an SMSF—so much that the ATO has published a 30-page booklet here on how to do it. In a nutshell, you first need to decide on which structure you want to use: individual or corporate trustee.
Once this has been determined, you then need to appoint trustees, making sure all trustees meet the eligibility requirements, and those trustees need to sign the trustee declaration within 21 days of consenting to become a trustee. You also need to create a trust deed, which is one of the most important documents for your SMSF, as it sets out how your fund will be run and what it will be able to do.
To be an official superannuation fund, your fund needs to hold assets, and those assets need to be held separately from any other entity’s assets. Your fund therefore needs its own bank account, and it must be registered with the ATO within 60 days of being established to receive an ABN and TFN. Your fund also needs to register for an Electronic Servicing Address (ESA), which may be provided by your SMSF administrator, if you use one, or you can apply for one from a provider here.
As outlined earlier, your fund will also need an investment strategy which needs to set out the fund’s investment objectives and the types of investments it can make. There is no specific form for an investment strategy, but it needs to be in writing, and it needs to be reviewed regularly.
Are There Certain Rules for SMSFs?
In short: yes. There are many rules, regulations and requirements for SMSFs and SMSF trustees.
You need to appoint and pay for an auditor every year to audit your fund, you need to keep records for at least five years and in some instances for as long as 10 years, you need to value your assets at least annually and complete your annual return annually.
You need to have trustee meetings, and minute those meetings, for any decision the fund makes, especially around investments, and you need to have a detailed investment strategy which you review regularly.
There are even more onerous rules and requirements once a member of an SMSF enters retirement.
Why Have a SMSF?
The main advantage of an SMSF is summed up in one word: control. You know exactly where your superannuation funds are invested and usually how well those investments are doing.
If you love investing and learning about superannuation, then an SMSF might be right for you. It also helps if you like using your spare time to stay on top of what’s happening in the markets, learning about your SMSF requirements, and following what’s happening with regard to superannuation legislation.
In some instances, there may be some cost advantages to having an SMSF, but you need to have more than $200,000 in super for it to become cheaper to have your own fund than investing it in an industry or retail fund.
Some Disadvantages of SMSFs
As an SMSF trustee, whatever happens with your fund, regardless of whether you seek professional advice or not, you will ultimately be responsible for anything that goes wrong and will have to face the penalties. Penalties for breaches include fines, disqualification of trustees and civil and criminal penalties.
There is also a huge time commitment involved in running an SMSF. You can always use an SMSF administrator, which can do some of the grunt work for you, but they of course charge for the service.
You also need a considerable superannuation balance to start with, with research by the SMSF Association finding that while SMSFs with balances of $200,000 offer equivalent value to a retail or industry fund, those with $100,000 or less are not competitive compared to APRA-regulated funds and SMSFs with $50,000 are more expensive than alternatives.
You can read more in our guide to the best default superannuation funds in Australia.
Frequently Asked Questions (FAQs)
What is an SMSF?
A SMSF—or self-managed super fund—is a type of investment fund run by a group of no more than six trustees for the purposes of accruing money for retirement. Each SMSF is unique in that the trustees decide on the investment path, unlike with institutional super funds that do the investing for you. While SMSFs give you a lot of control over your retirement funds, there are strict regulations and requirements in maintaining one, and it’s generally accepted you need at least $200,000 in retirement funds to make it worthwhile.
How do I know if I should have a SMSF?
That’s a very tough question to answer. You definitely need at least $200,000 to make it cost competitive, and it might be worth seeking some professional advice before you start one as there are some rigorous requirements and responsibilities of managing one.
How much does an SMSF cost?
The SMSF Association research found that administration costs can range from $1514 to $3074 for a fund in accumulation mode and investment fees can range from 0.07% up to 1.75% per annum.
How do I close my SMSF?
You need to get written permission from all trustees and dispose of, or rollover, all member benefits. The ATO has a 17-page booklet on it here.
How much can SMSFs borrow?
There is no official limit on how much SMSFs can borrow but they can only do so in very limited circumstances for very limited purposes. It’s recommended you seek advice on this issue.
Can I buy property through a SMSF?
Technically yes but there are a lot of rules and regulations around how that works to make sure people don’t use their SMSFs just to accumulate properties.
Are SMSFs a good idea?
The short answer? It depends. If you have a healthy super balance—usually over $200,000—are financially astute and don’t mind meeting the requirements that come with an SMSF, then a self-managed fund may suit you perfectly. There are no shortage of responsibilities when you become a SMSF trustee, but for people who enjoy complete control over their investments and asset allocation, it is a popular choice. However, if you are just starting out in your working life and don’t have much super accumulated—or the thought of being financially responsible for the fund and its outcomes leaves you cold—then you may be better off sticking to one of the top institutional funds, like most working Australians. You can read more in our guide to the best super funds in Australia.
