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An SMSF may be right for you if:

  • Control over how you invest
  • Accountability for your super fund
  • More options tailored to your circumstances
  • Potential cost savings depending on your circumstances
  • More flexibility in how you pass on your wealth.

 

  • Investment knowledge, experience and skills
  • The time to actively get involved in researching and managing your investments
  • Commitment to keep up with the rules and regulations
  • A large enough super balance to make an SMSF cost effective and allow you to diversify your investments
  • An understanding of the fact that SMSFs are treated differently in the case of fraud, compared with other super funds.

How much super do you need for an SMSF?

There’s no hard rule on the amount of super needed to set up an SMSF.

An SMSF involves both set up and annual running costs, which includes any investment-related expenses in addition to accounting, legal and tax advice, the cost of having your fund audited each year and an Australian Taxation Office supervisory levy.

As a general guide The Australian Securities & Investments Commission (ASIC) suggests a fund with a balance of more than $200,000 may be cost-effective, but the more you choose to outsource, the more the cost of these services can dilute your returns. 

Another consideration is diversification. Ideally you want to be able to spread your risk by accessing a wide range of investments. For SMSFs with a smaller balance it may be more difficult to spread risk in this way.

Some risks to be aware of

If you’re thinking of an SMSF, it is important to understand the following risks, which do not apply to other superannuation funds:

  • In the event of fraud, you will not have access to the compensation arrangements that apply to large super funds.  This means that you may lose a substantial amount of your retirement wealth in the event of fraud
  • Members of SMSFs do not have access to the Superannuation Complaints Tribunal, a key way that members of other funds can resolve disputes in a timely and low-cost manner.  In an SMSF, you may instead need to take legal action to resolve disputes, which can be costly and time consuming
  • Life and disability insurance cover may be more difficult or expensive to get via an SMSF
  • You are ultimately responsible for the operation of your SMSF, which includes complying with a range of important duties and rules.  Significant penalties can apply for non-compliance
  • A future change in circumstances (for example, bankruptcy, relationship breakdown, loss of mental capacity, reduced superannuation balance) could mean that you will want to (or have to) wind up your SMSF.  It is important to understand that costs may apply, and to prepare an exit strategy for this future risk
  • A recent survey* showed SMSF trustees on average spent over 7 hours a month on managing and administering the fund, doing paperwork, keeping up-to-date with compliance changes and researching investments.

If you would like to learn more about SMSFs and their appropriateness for you, we recommend viewing the ATO SMSF video series.

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Talk to an SMSF specialist

Things you should know:

* Investment Trends April 2015 SMSF Investor Report, based on a survey of 3,941 SMSF trustees

This information is prepared by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945. Registered office: Ground Floor, Tower 1, 201 Sussex Street, Sydney, NSW 2000. For terms and conditions of the products mentioned, please visit any of our branches, or call us on 1800 138 363, Monday to Friday, 8.30am to 5.30pm AEST.

Commonwealth Financial Planning Limited ABN 65 003 900 169 is a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia. Commonwealth Financial Planners are representatives or authorised representatives of Commonwealth Financial Planning Limited.

Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (Colonial First State) is the issuer of interests in Commonwealth Essential Super ABN 56 601 925 435. This information is not financial product advice and does not take into account any person’s individual objectives, financial circumstances or needs. You should read the Product Disclosure Statement (PDS) for Commonwealth Essential Super and consider talking to a financial adviser before deciding whether to acquire or continue to hold this product. Click here to download the PDS, collect one from any branch of the Commonwealth Bank or call us on 13 4074 and we’ll post one out to you. Colonial First State is a wholly owned subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124 (‘the Bank’). The Bank and its subsidiaries do not guarantee the performance of Essential Super or the repayment of capital by Essential Super. An investment in Essential Super is via a superannuation trust and is therefore not an investment in, deposit with or other liability of the Bank or its subsidiaries.  An investment in Essential Super is subject to risk, loss of income and capital invested. 

The information contained may include general advice but does not take into account the investment objectives, financial situation and needs of any particular individual or trustee of a self-managed super fund. You should assess with the help of legal, financial and taxation advice, whether the information is appropriate in light of your own circumstances before acting on it.