A self-managed super fund (SMSF) is a private fund that you manage yourself. It provides access to additional asset classes to invest in, compared to a typical super fund. As the Trustee, you’re in charge of making the investment decisions for the fund. But it also means you’re responsible for complying with the super and tax laws. Considering setting up a SMSF is a big decision and you’ll need the time, and skills, to do it.
The purpose of an SMSF is to provide income in retirement just like any super fund. This means you can’t use it to buy a holiday home or try to get early access to your super. This is illegal and severe penalties apply. By establishing an SMSF, you become the Trustee, and are therefore expected to understand super and tax laws, and need to consider the best financial interests of the members of your fund. It’s your responsibility to comply with these laws and you can be personally fined if your SMSF breaches the law.
These are serious responsibilities and come with a number of risks. For example, your investments may not provide the return you expected, or your could lose money due to fraud or theft, in which case you don’t have access to any special compensation schemes.
You remain responsible for the management of your SMSF, even if your circumstances change, for example if you lose your job or if there is a relationship breakdown between the members of your fund. And even if you get help from a professional, you’re personally liable for the fund’s decisions.
Most super funds offer insurance cover to members, which usually costs less as large funds can get discounted premiums. As a Trustee of an SMSF you need to consider whether to purchase insurance for your members (even if you’re the only member).
It costs money to set up and run an SMSF. According to the Australian Taxation Office (ATO), every year that you have an SMSF, you'll need to pay for an independent audit and the supervisory levy. Most SMSFs also pay for additional help, such as:
Most people believe a SMSF is worthwhile if you have a large super balance. But when making the decision to set up an SMSF, it's important to focus on the overall suitability rather than just your super balance. For example, even if you have a lower balance but have the time and skills to do most of the administration yourself, or if you expect more money will be added soon, then an SMSF may be for you. On the other hand, if you have a high super balance but don’t have the skills, time or experience to run an SMSF, you may decide to stay with your current super fund.
To help you work out the suitability of an SMSF, taking into considering your super balance, the Australian Securities & Investments Commission (ASIC) has prepared these case studies. You can also find more information on ASIC’s MoneySmart or the ATO website.
If you have any questions about your super or what strategies might work to help you achieve your retirement goals, you can reach us on 13 64 63, Monday to Friday, 8am to 6pm, or email help@mine.com.au. We can also put you in touch with Mine Super Financial Advice for additional support to help you decide what’s right for you. Mine Super members are entitled to a complimentary appointment. And did you know? Advice on how your account is invested is at no extra cost, but there are fees associated with providing personal financial advice. During your appointment your adviser will discuss the fees and how you’d like to proceed.
Meet the team or request an appointment with Mine Super Financial Advice.
Sources: MoneySmart and Australian Taxation Office