An SMSF may be right for you if:

You want:

  • More control on how your money is invested
  • 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

And you have:

  • 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, and in the event of disputes arising, compared with other super funds

What you need to consider

Amount of super required

There’s no hard rule on the amount of super needed to set up an SMSF. 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. The relative cost of your fund will also depend on what assets you choose to invest in.

Another consideration is diversification. Ideally you want to spread your risk by accessing a wide range of investments. For people with a smaller SMSF balance, it may be more difficult to spread risk.

Costs involved

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 (ATO) supervisory levy. Depending on circumstances, these fees may be more than other super funds.

Time involved

SMSFs also require an investment of your time.  This includes managing and administering the fund, doing paperwork, keeping up-to-date with compliance changes and researching investments.

Risks

If you’re thinking of setting up an SMSF, it’s important to understand the risks that don’t apply to other super funds.

  • Over the long term you should be confident that you’ll be able to generate a return that compensates you for taking on the investment responsibility. Good advice and a long term strategy are crucial
  • You’re ultimately responsible for the operation of your SMSF, which includes complying with a range of important duties, laws and rules.  Not complying can result in significant penalties
  • In the event of fraud, you’ll not have access to the compensation arrangements that apply to large super funds - you may lose a substantial amount of your retirement wealth in the event of fraud
  • Members of SMSFs don’t have access to the complaints body - 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 with an SMSF
  • A change in circumstances e.g. bankruptcy, relationship breakdown, loss of mental capacity, becoming a non-resident, reduced superannuation balance could mean that you’ll want to (or have to) wind up your SMSF.  It’s important to understand that costs may apply and prepare an exit strategy for this future risk

For more on SMSFs, watch the ATO SMSF video series.  

Things you should know

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.

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.