Self-managed super funds (SMSF)
Understanding the responsibilities, risks and costs before you switch.
We understand that some members are interested in taking more control of their super by setting up a self-managed super fund (SMSF). While an SMSF can offer flexibility for some, it is a major financial decision that comes with significant responsibility, risks and costs.
It is important to look past the marketing and understand exactly what is involved before you make the switch.
The potential benefits
For some sophisticated investors with large balances, an SMSF may be a suitable option, depending on their individual circumstances. Potential benefits may include:
Control: You decide exactly where your money is invested.
Investment choice: You can invest in assets not typically available in standard funds, such as direct residential or commercial property.
Tax planning: You may have more flexibility in managing tax outcomes for your specific situation.
Your responsibilities as a trustee
When you set up an SMSF, you (and the other members) usually become the trustee(s) either as individuals or through a trustee company (as a director of the company). This means you are responsible for the fund’s decisions and for complying with the law. The ATO is responsible for the regulation of SMSFs.
As a trustee, you must:
Comply with strict laws including tax, super and corporations laws. The penalties for getting this wrong can be severe and can be levied on you and/or your trustee company, not the fund.
Act in the best interests of all members at all times.
Formulate and review an investment strategy regularly. While you may have more control and flexibility in relation to how you invest, there are limitations in super laws that you will need to understand when formulating and reviewing your investment strategy and selecting your preferred investments.
Keep comprehensive records and arrange an annual audit by an approved SMSF auditor.
Value the fund’s assets at market value every year.
The ATO have a detailed section describing all of the responsibilities you have as a trustee of an SMSF – click here to view.
Possible issues to consider
Before establishing an SMSF, you should consider the "cons" alongside the "pros". You can get help from a financial adviser to make this assessment but note that a recent report by the corporate regulator, ASIC (Report 824), highlighted significant concerns about the quality of advice people receive when setting up SMSFs.
It is not "set and forget": Managing an SMSF takes time. It’s been estimated that trustees spend over 100 hours a year managing their fund1.
Loss of protections: In the event of theft or fraud, SMSFs cannot access government financial assistance which may be available to members of APRA regulated funds under the Superannuation Industry (Supervision) Act.
Insurance issues: You will not have access to insurance through Group life insurance policies held by many APRA-regulated funds (sometimes with limited or no underwriting, for eligible members). This means you’ll have to organise your own ‘individual’ insurance policy, if you need insurance cover in your SMSF. Insurance cover through a Group insurance policy maybe cheaper and easier to obtain than through an individual insurance (depending on your circumstances such as your age, medical history etc).
1 Based on ‘SMSF Investor Report, April 2021, Investment Trends’ – noted at Moneysmart: https://moneysmart.gov.au/how-super-works/self-managed-super-fund-smsf
The true cost of running a SMSF
Running your own super fund is not free – an SMSF involves set-up costs and accounting, auditing and other fees (such as legal fees) borne by you and other members of the SMSF (if any). Unlike Vision Super, where we use our scale to help keep costs low for all members, the size of an SMSF means the impact of running costs may be significant.
What the data says
According to an ATO statistical overview, the median total expense to run an SMSF was approximately $9,874 for the 2023/24 financial year2. If your balance is under $500,000, these fixed costs can eat significantly into your retirement savings compared to the fees you would pay in an APRA-regulated fund.
If you seek expert advice to help with your SMSF’s investment strategy and the selection of investments, additional fees will apply.
2 Based on data collected by the ATO. Expense calculations for SMSFs aren’t necessarily the same as for APRA-regulated funds. See: https://data.gov.au/data/dataset/self-managed-superannuation-funds/resource/7a50c5c8-5c0e-4a4b-a11e-feaad39f2bd0
Thinking of closing your SMSF?
If you have an SMSF and are finding the costs too high, the administration too time-consuming, or you simply want a less stressful retirement, transfer your super to an APRA-regulated fund like Vision Super and close your SMSF.
Steps to wind up your SMSF
Winding up an SMSF can be complex, and you must follow the correct process to avoid penalties.
1. Check your Trust Deed: review your deed for any specific wind-up instructions.
2. Sell or transfer assets: you will need to sell the fund’s assets (like shares or property) or transfer them out of the fund.
3. Pay all outstanding expenses: ensure all tax, audit, and accounting fees are paid.
4. Calculate final balances: determine the final balance for each member.
5. Rollover your super: transfer your super balance to another fund using the SuperStream standard.
6. Final audit and return: you must have a final audit completed and lodge a final SMSF annual return with the ATO.
7. Close the bank account: once all liabilities are settled and money rolled over, close the SMSF bank account.
Ready to bring your super back to an APRA-regulated fund?
If you’d like to transfer your SMSF super balance to Vision Super, our team can help guide you through the process*.
* You should consider whether it is appropriate to your needs and circumstances. You should obtain and read the relevant Vision Super Product Disclosure Statement and Target Market Determination available at www.visionsuper.com.au before acquiring any financial product. We suggest you seek professional advice to make the best choice for your circumstances. Where tax information is included you should consider obtaining tax advice. Vision Super Pty Ltd ABN 50 082 924 561 Australian Financial Services Licence 225054, is the Trustee of the Local Authorities Superannuation Fund ABN 24 496 637 884.