What You Need to Know About Self Managed Super Fund

2 trillion dollars is held by Australians in superannuation. Almost 1/3 of that amount is held in self managed super accounts, which makes almost a million people controlling their own super fund through a Self Managed Super Fund (SMSF). Is an SMSF right for everyone, today we are going to be talking about the benefits and the risks of SMSF. SMSF’s have been growing in popularity and since 1998 Self Managed Super Funds have been growing quite a bit. In 1998, Self Managed Super Funds were about 12 % of the super industry. Today they’re about 29 % of the super industry.


Self managed super fund trustees generally find the control and choice that they have with a Self Managed Super Fund is what they enjoy the most. That means they have the choice to select what type of investments they particularly like. That might be direct shares, commercial property, residential property or cash term deposits. It’s whatever that they are particularly comfortable with that they can choose, that’s a real benefit for them.

What Sort of Task is Self Managed Super Funds

To be honest with you when I hear self managed super funds, it sounds like a lot of work. Realistically what sort of task is it? Is it a weekly, daily, or monthly? There is a lot involved and that’s something that’s really important for people to actually think through before they set up a Self Managed Super Fund. Most of the work is on the ongoing and annual side of things. In terms of how many hours it takes, it varies. There are certainly some people that might spend a few hours a month looking at things and other people might spend a few hours a year. That depends on the investment strategy that they’ve got in place and the approach to investments as well as their life stage. You do hear of people that spend a few hours a day, looking after their investments in superannuation. They might be people that have a background in investments themselves or background in financial services. They really do enjoy looking after their investments and it’s become a bit more of a way of life for them in terms of looking into things each day.

What are the Practicalities of Being Responsible for a Self Managed Super Fund?

There are obviously controls around running a self managed super fund because you are not just a member of the super fund you’re also a trustee. The ATO requires that new trustees sign a declaration that they have understood and are willing to take on those responsibilities. Just to give you an idea, the declaration includes about 2 pages of obligations. There’s quite a lot to it. To give you a bit of a summary of some of those key areas, it includes that the trustees will act appropriately as trustees, including acting honestly and in the best interest of members, that they’ll keep the self managed super fund assets separate to their own and that the superannuation fund will be run for the retirement benefits of the members. Self managed Super fund trustees also have annual obligations and that includes maintaining an investment strategy for the fund, organizing an independent audit of the fund on an annual basis, undertaking annual evaluations of assets and also organizing financial statements and tax returns. All documentation and records need to be maintained. There’s quite a lot to look after there and that’s just a subset of some of the requirements.

Can SMSF be Outsourced?

When people think about a self managed super fund they think “Well, it’s self managed”. But there are some parts that actually can be outsourced. I think there’s a bit of confusion, sometimes because you hear about DIY super and self managed super funds. It really isn’t necessarily that clear as to what you have to do and what you can get assistance with. DIY SMSF for example is more associated with people doing it all themselves. Even for those people though, they would often need to get an accountant. For self managed super funds today, that’s probably more associated with partnering with a professional team and having what we call a supported self managed super fund. Your professional team can help you with the accounting. They can help you with the documentation and they can also be of assistance in terms of the investment advice. They can give you new investment ideas and solutions and perhaps help you with areas that you might not have experience in. As the trustee, you are still responsible for all the decisions, but they can guide you and offer you those new ideas.

Who Can Set Up a SMSF?

It’s people from all walks of life really, but they do have to be comfortable making financial decisions and that’s generally because they might have an interest in their retirement planning and really trying to get their retirement finances working for them. Where we would say a self managed super fund might not be appropriate is if you’re not comfortable making financial decisions. It’s going to be a difficult situation for you to run. More details here.

Risks Involved With a SMSF

Like any financial product or financial service, there are risks involved with a SMSF. Well with an SMSF, what are some of the considerations or risks people need to think about. There are a number of things to be very conscious of because again you’re that trustee who have special obligations. If you don’t meet those obligations, the ATO can issue civil and criminal charges and if the fund is deemed to be known compliant, the penalties are very high.

There are also issues around if the fund experiences a loss due to fraud or theft, self managed super funds don’t have financial assistance through government schemes whereas other regulated funds do. That’s something to be conscious of.

The other area to be very careful with is diversification. That golden rule of not putting all your eggs in one basket that’s just as true today as it was 50 years ago. It’s something that self managed super fund trustees need to be conscious of as well.

The Future of SMSF in Australia

I think self managed super funds are going to continue to experience growth in popularity. That’s for a number of key reasons. Firstly, there’s a growing number of baby boomers reaching that retirement age that need to make critical decisions about how they old, their time and assets. Secondly, we are seeing that there are technology gains in information about investments and also in investment products that are making them more accessible to retailing business. In addition to that, at the same time, we have continued volatility in global economic conditions which are driving investors to look for transparency in their investments and also looking for opportunities in different asset classes. The last reason that we see this increasing interest in self managed super funds is due to the ongoing speculation in and around policy settings that emphasizes one of the real features of self managed super funds. That’s the ability to adapt to legislative change specifically that you can take a long term approach with your investments and that can be maintained despite changes in tax rates.

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