Self-managed super fund (SMSF)

Do it yourself super

Some people want the hands-on control that comes with a self-managed super fund (SMSF). Of course, with added control comes added responsibility and workload.

SMSFs can be suitable for people with a lot of super and extensive skills in financial and legal matters. You must be prepared to research and track your super investments regularly if you want to manage them yourself. Super is your investment for your retirement, so don't rush in.

How SMSFs work

You can set up your own private super fund and manage it yourself, but only under strict rules regulated by the Australian Taxation Office (ATO).

An SMSF can have between one to four members. Each member is a trustee (or director if there is a corporate trustee). Running your own fund is complex.

When you run your own SMSF you must:

  • Carry out the role of trustee or director, which imposes important legal duties on you
  • Use the money only to provide retirement benefits
  • Set and follow an investment strategy that ensures the fund is likely to meet your retirement needs
  • Keep comprehensive records and arrange an annual audit by an approved SMSF auditor

Important

If you decide to set up an SMSF you are personally liable for all the decisions made by the fund even if you get help from a professional or another member makes the decision.

If you're running an SMSF you will typically need:

  • A large amount of money in the fund to make set up and yearly running costs worthwhile
  • To budget for ongoing expenses such as professional accounting, tax, audit, legal and financial advice
  • Plenty of time to manage the fund
  • Financial experience and skills so you are more likely to make sound investment decisions
  • Separate life insurance, including income protection and total and permanent disability cover

You can pay an adviser a fee to do the administration or help with the investment decisions for your SMSF. However, be sure you understand what your adviser is doing because you cannot pass on the responsibility of being a trustee or director.

Video: SMSF's - You can't do it all yourself

Video about SMSF's.

SMSFs are often called 'do-it-yourself funds' but that isn't really the case. Meet the people who you will have to work with or who can help you meet your obligations as an SMSF trustee in this ATO video.

SMSF's - You can't do it all yourself transcript

Questions to ask

Before setting up an SMSF, ask yourself these questions:

Have you considered other do-it-yourself (DIY) super options?

Many professionally managed super funds have DIY investment options which let you choose which assets you'd like your super invested in such as shares, Exchange Traded Funds and term deposits. This gives you some control over your specific investments without the legal and administrative requirements of running an SMSF.

Have you considered other super funds or investment options?

If you're thinking about setting up an SMSF because you're not happy with your current fund, consider changing to another fund or investment option first. See choosing a super fund.

Will your self-managed fund outperform your current fund?

Super funds use professional managers to invest your super money. Can you do better than the professionals?

Have you considered the costs?

There are running costs that go with having an SMSF. These include the cost of investing, accounting and auditing for your SMSF, which may be much higher than what you are currently paying. These costs will cut into your retirement savings.

Will you lose valued benefits?

Super funds usually offer discounted life and disability insurance. If you set up an SMSF you will have to purchase your insurance separately. Make sure you look into your insurance options before closing your current super account as age and health issues can limit your ability to buy a new policy and increase your premiums.

Do you know enough?

Do you know all your legal responsibilities? Are you on top of the investment market? Can you manage a diversified portfolio of investments? Do you know the tax implications?

What if your relationship with others in the fund changes?

If there is more than one member in your SMSF, have you written a plan outlining what will happen in the event of ill health, death, relationship breakdown, or waning interest?

Find out how to get out of a self-managed super fund.

Warning

If an SMSF member loses money due to theft or fraud they do not have access to any special compensation schemes. Also, SMSF members do not have access to the Superannuation Complaints Tribunal to resolve disputes.

SMSFs and investing in property

Some people want to use their SMSF to invest in property. See our SMSFs and property page to find out more.

SMSF scams

Be wary of people who approach you to set up an SMSF with the aim of withdrawing some or all your super to pay off debts. These arrangements are illegal.

See superannuation scams for more information.

Do your research

If you're thinking of running an SMSF, consider completing a free Self Managed Superannuation Fund Trustee Education Program designed to assist trustees in understanding their role and responsibilities.

The ATO has a section about self-managed super funds and a range of other useful resources listed below, that you can download from their website or order a hard copy.

If you do get SMSF advice make sure you get it from an expert, for example a member of the Self-Managed Super Fund Association.

If you're thinking about setting up an SMSF you need to be 100% committed. Before you make that decision, do your research and ask yourself what the real benefit is.


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Last updated: 02 Mar 2015

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