Self-managing your super fund

Last updated on 28 September 2023

Older woman sorting out her finances and superannuation
If you have the time and knowledge to self-manage your own super fund, then it can be a great hobby during retirement. [Source: Shutterstock]

Key points:

  • You have more freedom and control over your super investment portfolio
  • All the responsibilities of the super fund falls to you
  • Make sure you understand what is involved with self-managing your super fund and the legal and financial requirements

In March 2021, the Australian Taxation Office (ATO) reported that there are 1,120,936 people in Australia investing their super in one of the 597,396 self-managed super funds nationally.

A self-managed super fund (SMSF) is different to your normal super funds and a lot more hands on.

Some people enjoy having complete control over how their money is invested, but it can come with risks you wouldn’t experience if you were with a super provider.

Deciding to have an SMSF can be a big financial decision, so you need to fully understand what is required of you before starting your own super fund.

Marisa Broome, Chair of Financial Planning Association of Australia (FPA), says that self-managed super funds can be a great way to control your super money if you have the knowledge and time.

“The first thing you really have to determine is ‘do I really have the time?’ And while you are working, you may not. But in those early years of retirement, you may have spare time where you can be actively involved in the management of your money,” says Ms Broome.

What is a self-managed super?

While a super provider would invest your super on your behalf, your SMSF allows you to invest your super in the way you choose.

Usually, an SMSF would have a few members involved and cannot exceed six people. You can have a single member fund, but Ms Broome says it can be trickier to structure well.

As a member of an SMSF, it means you are considered a ‘trustee’ of the fund, as you are getting benefits from the SMSF while also organising compliance with the super laws or tax requirements.

Ultimately, you have a huge amount of control over your super, which is why some people like this option more than super providers.

Benefits and downfalls of an SMSF

There are a number of reasons why people decide to run or join an SMSF. These are just a few pros and cons of self-managed superfunds as there are a lot of restrictions and legalities around running an SMSF.

Some benefits of SMSF include:

  • More freedom to invest in what you want
  • A larger pool of investments to choose from, for example, collectables or physical gold
  • Expanded investment portfolio
  • Better tax benefits and strategies

“You can actually control the sorts of investments you make. So, if you personally have an ethical investment that you want to follow – a certain investment philosophy because it goes along with your values – then you can select your investments and pursue things that way, Ms Broome says.

“You may also decide that you want your assets to only have exposure to international shares. You can actually make some really conscious, active decisions about where your money is invested.”

Some downfalls of SMSF include:

  • High insurance premiums
  • Big legal risks
  • All the responsibility is on you
  • Managing a super fund can take up a lot of time
  • Fees can be higher depending on your assets (in certain circumstances)
  • You’ll be paying for audits and levies, and financial advice
  • Maintaining documents and records for up to 10 years
  • Restrictions on certain investments

“I think the biggest con is that the cost is enormous if you don’t have [your SMSF] managed well or if you can’t spend a lot of time doing it yourself,” explains Ms Broome.

“You have to go out and pay an accountant to do your tax return and an auditor to audit the fund every year, which are both legal requirements, and then you have to pay a financial planner to also do the investment advice around it.

“If your fund is small, $200,000 or $300,000 a year, you are actually probably paying an awful lot of money in comparison to what you would pay to have an expert fund manager manage it within the super system itself.”

What is required of me?

You need to understand all the laws around super and tax and make sure your super fund is complying with these laws correctly.

While the risk of non-compliance falls on the shoulders of super fund providers, for SMSFs, this risk falls directly to the trustees. You can be fined, personally, if your SMSF is not following the rules and a breach is found.

To undertake a role in an SMSF, you need to be comfortable with legal, financial, tax and administrative responsibilities – or willing to learn.

Just because you have the freedom of a self-managed super account doesn’t mean you can do whatever you want.

There are very specific laws you need to follow, just like other super funds, and if you don’t follow them you will be breaking the law – which can result in some serious repercussions.

If you are concerned you won’t be able to appropriately manage the legalities of an SMSF, then it might be a sign that it isn’t for you.

Benefit for older people

Older people who have retired may decide to create a SMSF as a way to keep themselves busy during retirement. Ms Broome finds some of her clients enjoy the new challenge in managing their own fund.

“I think a lot of people when they finish their paid employment struggle to find what they are going to do next and this can be a really good hobby. Especially if it is someone that has had some experience in investing before,” explains Ms Broome.

“This could be more of a hobby, it is a really good way of monitoring your wealth and being involved in your wealth and income you draw in retirement. I think people have a lot more capacity at that stage of their lives, because they have a little bit more time on their hands.”

Your SMSF can also be a form of estate planning for your children. Ms Broome provides an example of having your children a part of your fund, so they can eventually take over the management of your fund in the future.

For example, if you have a SMSF and you are getting older or lose the ability to manage your fund, like losing capacity because of dementia, then your fund can be set up with succession planning in mind.

What to ask yourself before choosing SMSF

Ms Broome says the biggest question you should be asking yourself is – “Is it a good idea just today or is this something I am willing to commit to in the long term?”

“This is not a short term thing. It is quite a complicated process to set it up and even more complicated a process to close it down if it is something they don’t want to do. So really put some thought in, is it right for you?” explains Ms Broome.

If you are still trying to decide if this is the best option for you, the best place to get advice is to talk to a financial planner or your accountant.

Ms Broome says you will likely have a lot of involvement with your financial planner and accountant anyway because expert advice will be required over the time of your SMSF when making investment strategies, during fund asset allocation, or adhering to super requirements.

Lastly, Ms Broome says to keep in mind that there are more fund options available to you that provide control that doesn’t require you having to set up a self-managed super fund.

“Some of the funds that financial planners can offer can allow you to still have some control over the investment decisions you make with your super without having the administrative burden of being a trustee of your own superannuation fund,” says Ms Broome.

“Don’t just think your only two options are being in a big industry fund or being in a self-managed super fund.

“There’s a lot of other variations on the way through that might be an interesting stepping stone or maybe a good solution for you to have more control about where your super savings are being placed and what sort of returns you might get.”

To learn more about setting up your own SMSF, visit the Australian Taxation Office website.

Why have you decided to try self-managing your own super fund? Tell us in the comments below.

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