Investor Education > Self Managed Super Funds
SELF MANAGED SUPER FUNDS
Like other super funds, a self-managed superannuation fund (usually referred to as a SMSF or a DIY super fund) is a trust where money and investments are held and managed on behalf of the members, however the members of a SMSF are generally also trustees of the fund. The growth in SMSFs over the past decade has been phenomenal - as at 30 June 2013, there were over 500,000 SMSFs with over $500 billion in assets.
The growth in SMSFs is due to many reasons. SMSFs give people control over their super; they provide greater investment flexibility and they can be a better vehicle to implement tax-planning strategies that take advantage of tax concessions afforded to superannuation savings in Australia. You are able to acquire certain assets (e.g. property) that may not necessarily be available through a standard super fund. And depending on the size of the fund, the costs of running an SMSF can be lower than the fees charged under other superannuation solutions.
How an SMSF works
When you set up an SMSF, you become a trustee of the fund (or a director of the company that is the trustee) and responsible for managing it according to its trust deed, and the legislation that apply to SMSFs. As a trustee, you will have a number of administrative obligations – for example, you will need to keep appropriate records and report to the ATO on fund operation as well as arrange an annual audit of your fund. It's important to understand that by running your own super fund as the trustee, you are legally responsible for all the decisions made by the fund, even when you receive professional advice and outsource the administration.
The SMSF can accept money contributions from its members from various sources but like any other super fund, this will be subject to contribution caps and a member's eligibility to contribute. Generally, you cannot accept an asset as a contribution from a member, though there are some exceptions.
When paying benefits, your SMSF generally can only pay a member's super when the member reaches their ‘preservation age’ and meets one of the specified conditions of release – for example, retirement. There are very limited circumstances, such as death or a terminal medical condition, where a member’s super can be accessed before this. Severe penalties apply for unlawfully releasing super benefits.
Costs
Costs of establishing and running SMSFs vary due to a number of factors – the service providers you use, the size of the fund, the capabilities of the trustees and the complexity of the structure and investment portfolio. Broadly speaking, costs associated with SMSFs can be categorised by:
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Establishment costs
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Compliance costs
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Administration costs
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Investment costs
In a Rice Warner report commissioned by ASIC released in May 2013 titled “Costs of Operating SMSFs”, the range of costs associated with SMSFs was reviewed. The following cost range was sourced from the report.
Establishment costs relate to the establishment and registration of the superannuation trust, and if a corporate trustee is nominated, the establishment and registration of the corporate trustee. Costs range from $345-$990 for the establishment of the SMSF, or $916-$2035 for an SMSF with a corporate trustee.
Compliance costs are annual fees which include government charges, financial statements and audits. For a fund in accumulation phase, this can range from $1163 to $2367 per annum.
Administration costs can vary greatly as these costs depend on the services the trustees wish to delegate. In their report, Rice Warner surveyed the costs for the full administration service including all services of compliance administration. In the accumulation phase, the annual administration costs range from $2468-$7443.
Investment costs
SMSFs that make use of managed investments as part of their portfolio will incur additional costs for the investment management. These typically range from 0.35% p.a. to 1.20% p.a.
Trustees may also incur advice costs should they wish to engage a financial adviser to select and manage their portfolio.