If you’re a Brit living in Australia and have been considering your retirement savings options, you may well have come across the acronym “SMSF”, which stands for Self-Managed Superannuation Fund.
As the name suggests, it means you set up and administer your own super arrangement, rather than paying into a retail scheme.
There’s no doubting the popularity of such schemes. The Australian Tax Office (ATO) confirms that more than 1 million Australian residents are currently members of an SMSF with the vast majority (87%) over the age of 45.
Read on to discover more about SMSFs including what they are, how they work, and some of the advantages and disadvantages you need to be aware of before you consider setting one up yourself.
Self-Managed Super Funds are an increasingly popular investment vehicle
A SMSF gives you full control over how you invest and manage your super fund. These schemes benefit from the same tax concessions as standard super funds.
Self-managed funds can have up to six members, meaning that they are commonly set up by families or small businesses to manage their retirement savings.
Your SMSF will be set up with a legal trust deed and all members will usually be named as trustees of the scheme, meaning that you will be jointly responsible for the management of your fund.
Rather than do the work yourself, however, you may decide to appoint a tax agent/accountant etc who will be able help with the administration of your fund.
Additionally, you may also want to seek advice from investment experts.
According to the latest figures from the ATO, in March 2024 there were 616,400 SMSFs in Australia.
Between them, these funds have an estimated total of AUD $932.9 billion in assets. Listed shares (29% of total estimated SMSF assets) and cash and term deposits (16%) are cited as the most popular assets held.
6 real benefits of running your own super fund
By taking control of your super fund through an SMSF, you can potentially enjoy a range of different benefits that you would not experience through a standard retail fund. These include:
- Access to a wider range of investment options than a standard super fund.
- The ability to invest in commercial property, which allows the directors of a small company to put their business premises into their pension fund. In addition to this, any rental income can be invested in the fund.
- Full control over the investments in your fund, meaning you can take advantage of short-term investment options.
- The ability to receive funds in UK sterling, which could be of real value if you have recently emigrated and are looking to transfer your UK-based pension benefits to Australia.
- Cost-effective administration and management charges, especially as your fund increases in size.
- Assets held within the SMSF can be protected from creditors in the event that you go bankrupt. While there are limitations of how this applies, it can be beneficial in areas where you hold business or real property assets are held in your SMSF.
4 important reasons why you might not want to set up your own self-managed scheme
As you’ve read, there are some clear advantages to managing your own super fund, either individually, through a family fund, or through your business.
However, it’s particularly important to be aware that SMSFs aren’t suitable for everyone. The disadvantages include:
- You and your fellow trustees will become fully liable for the scheme. This means that you will be held liable if the fund is responsible for any breaches of investment or taxation legislation.
- You will ultimately be personally responsible for the investment performance relating to your retirement fund. Without a good understanding of investment markets, you could jeopardise your future financial security.
- The costs of setting a new SMSF and ongoing management can be substantial and could have a disproportionate impact on the size of your fund in the early years. As a result, many in the industry believe that an SMSF may become viable when the value reaches $250,000
- The management and running of an SMSF can be time-consuming and stressful.
It can be sensible to get specialist help if you do set up your own super fund
According to Morningstar, trustees can spend up to 100 hours a year managing an SMSF.
Initially, there will be a substantial time commitment required when you set up your fund, and then establish your investment strategy.
Once the fund is up and running, you may well need to carry out detailed investment research.
Because of this, you may want to consider calling on third-party investment support from a specialist company.
As well as specialist investment advice, you may also want to consider the support you’ll need around the wider running of the fund, especially as you approach retirement.
ATO figures quoted by Forbes confirm that the annual average operating expenses in 2021/22 were $6,872, with the total expenses of funds averaging $16,314.
However, no two funds will be the same, and each individual will require their own level of support and professional advice.
Get in touch
As we’ve outlined, managing all aspects of an SMSF is a complex business. It involves, among other things, dealing with large amounts of documentation and paperwork, preparing accounts, carrying out transactions and transfers, responsibility for making investment decisions, submitting the fund’s tax returns and dealings with the ATO.
At BDH, we have a wealth of experience in helping our clients set up and manage their own funds to enhance and support their future retirement goals.
Please get in touch if you’d like to know more about the services we can offer.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances. All contents are based on our understanding of HMRC and ATO legislation, which is subject to change.
