Self managed super funds (SMSF) are not just for those with big super balances
There is still a misconception among owners of small to medium businesses (SME) that self managed superannuation funds (SMSF) are only for people who are very wealthy or who have large superannuation balances.
While not for everyone, an SMSF can offer considerable benefits to individuals and business owners. Research shows that SMSFs are not as expensive to run as many people may think.
What is an SMSF?
A Self-Managed Superannuation Fund (SMSF) is a private superannuation fund regulated by the ATO. SMSFs can have up to six members, usually family members, who also act as the trustees. Members jointly manage the fund’s assets and make investment decisions.
Research shows SMSF costs are competitive with industry and retail funds
Research by Rice Warner for the SMSF Association compared the costs of managing an SMSF and institutional superannuation funds (retail and industry funds). These funds are commonly referred to as APRA regulated funds.
It compared establishment costs, annual compliance costs, statutory fees and some investment management fees but not direct investment fees.
The research shows that:
- SMSFs with a balance of $200,000 or more are cost competitive with both industry and retail super funds
- SMSFs with a balance of $250,000 or more are the cheapest alternative provided the trustees do some of the administration, or, if seeking full administration, choose one of the cheaper services
- SMSFs with a balance of $500,000 or more are generally the cheapest alternative.
SMSFs with a low complexity can begin to become cost-effective at balances of $100,000. Many small and medium sized business owners neglect super. Establishing an SMSF can be a way to quickly boost low super balances.
Pooled member funds in an SMSF means a bigger balance
You can have up to six members in an SMSF. By pooling their funds, members have a higher overall balance, making managing the SMSF more cost effective. The table below compares the average costs of an SMSF and low fee APRA regulated funds with two members, for different balances.
Combined Balance | SMSF Compliance Admin Mid-range (2 members) | APRA regulated fund Low fees (2 members) |
$50,000 | $1,689 | $503 |
$100,000 | $1,690 | $863 |
$150,000 | $1,691 | $1,216 |
$200,000 | $1,693 | $1,566 |
$250,000 | $1,694 | $1,942 |
$300,000 | $1,696 | $2,301 |
$400,000 | $1,699 | $3,013 |
$500,000 | $1,703 | $3,725 |
Cost is only one factor when choosing the type of super fund
Cost is only one factor when deciding whether to have an SMSF or an industry or retail super fund. The additional benefits an SMSF offers may outweigh additional management costs.
You should also factor in your retirement and income goals and whether you have the time and expertise to be an SMSF trustee. SMSF members may not have the same level of protection from theft or fraud as members in APRA regulated funds.
Have a question about SMSFs?
We love questions. If you want to know more about Pitcher Partners Newcastle and Hunter’s superannuation (SMSF), business tax and advisory, and wealth management services, please contact us.
