Why do people choose to establish a Self Managed Super Fund (SMSF)?
There are a variety of reasons why people choose to establish their own SMSF but there are four primary benefits where at least one is usually the deciding factor. These are:
- Control. Many people do not want a third party to have the control over key management decisions that concern their superannuation fund. These people have chosen to be more involved in the management of their superannuation fund in order to stay abreast of the factors that may impact on their superannuation benefit.
- Investment Choice. Share market volatility can often be a source of some concern among investors and many are seeking the choice and transparency that comes with having their own SMSF.
Many small business proprietors recognise the opportunity to own their business premises by having their SMSF buy the property so that they pay the rent to their own super fund.
- Costs. Many of the costs associated with running a SMSF are relatively fixed in nature. Requirements such as the fund's annual tax return and audit are not directly linked to the asset value of the super fund. This provides a flat cost base for the fund's administration and compliance and can be a significant financial advantage for larger super funds.
- Flexibility. A private super fund is governed by the terms of its trust deed (within SIS Regulations) and that provides the opportunity when preparing the deed to allow for flexible terms. Examples of such flexibility include choice of pension type (complying & non-complying), in-specie asset transfers and certainty in estate planning (binding death benefit nomination).
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What should people know before deciding whether to establish a SMSF?
In addition to the perceived benefits of private super (see above), there are a number of other considerations when making the decision to establish a SMSF. These include:
Trustee Obligations. With the additional control and flexibility of a private super fund, comes the additional responsibility of being trustee of the fund. It is the trustee's responsibility to ensure that the super fund complies with SIS regulations in order to avoid penalties associated with non-compliance.
Time Commitment. Being responsible for and having control over the administration and investment strategy of a private super fund requires an ongoing involvement from the trustee and therefore can be a significant commitment of time.
Performance. Some people that have elected to establish their own private super fund have limited experience in investment management. The result of this can be:
- Investors who take on a high level of portfolio risk through inappropriate asset allocation and/or investment selection. Click here for suggested Investment guidelines.
- Investment underperformance through an overly conservative investment strategy that is often the result of a lack of understanding of investment fundamentals and markets.
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What does it cost to establish and administer a SMSF?
Establishment Costs
The cost to establish a SMSF, inclusive of GST is estimated to be $990.
If having a corporate trustee is the preferred option and a company needs to be formed for this purpose, this is estimated to be an additional cost of $1200.
Ongoing Administration Costs
At the end of each financial year, a SMSF must complete a set of annual returns in order to meet both its tax and compliance obligations. These requirements and associated costs are estimated below.
| Income tax and regulatory return |
from $1650 p.a. (inclusive of GST) |
| Annual audit |
$440 - $660 p.a. (inclusive of GST) |
| ATO supervisory levy |
$45 |
Note: The Income tax return estimate is a guide based on an average client scenario. Super fund tax returns that include share trading activity or other investing with multiple transactions are likely to be higher than the average quoted above.
Note: HPH Solutions does not charge SMSF establish fees and ongoing administration fees. These are usually charged by an Accountant or Specialist SMSF administrator. The figures above provide a guide to costs only.
Investment Management Fees (if applicable)
If managed investments form a part of the investment selection, the investment management fees will differ based on the manager and fund type. As a guide, the average management fee for a blend of funds across all different asset classes should be less than 1.0% per annum of assets under management.
For further information, please contact us
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Am I able to receive investment advice in relation to my SMSF?
Yes, we have a Certified Financial Planner in-house who can help advise you in the following:
- Stock Selection
- Listed Property
- Accumulation strategies e.g. re-contribution strategy
- Retirement strategies e.g. formation of Allocated Pensions & Market-linked Pensions
For further information, please contact us.
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Find more information on Self Managed Superannuation Funds
For more information on Self Managed Superannuation Funds, take a look at the information available for download in our Fact Sheets area. |
