A self-managed super fund (SMSF) is a private fund that you manage yourself. It provides access to additional asset classes to invest in, compared to a typical super fund. As the Trustee, you’re in charge of making the investment decisions for the fund. But it also means you’re responsible for complying with the super and tax laws. Considering setting up a SMSF is a big decision and you’ll need the time, and skills, to do it.

Your responsibilities

The purpose of an SMSF is to provide income in retirement just like any super fund. This means you can’t use it to buy a holiday home or try to get early access to your super. This is illegal and severe penalties apply. By establishing an SMSF, you become the Trustee, and are therefore expected to understand super and tax laws, and need to consider the best financial interests of the members of your fund. It’s your responsibility to comply with these laws and you can be personally fined if your SMSF breaches the law.

Understanding the risks is important

These are serious responsibilities and come with a number of risks. For example, your investments may not provide the return you expected, or your could lose money due to fraud or theft, in which case you don’t have access to any special compensation schemes.

You remain responsible for the management of your SMSF, even if your circumstances change, for example if you lose your job or if there is a relationship breakdown between the members of your fund. And even if you get help from a professional, you’re personally liable for the fund’s decisions.

Most super funds offer insurance cover to members, which usually costs less as large funds can get discounted premiums. As a Trustee of an SMSF you need to consider whether to purchase insurance for your members (even if you’re the only member).

Time and money to manage an SMSF

It costs money to set up and run an SMSF. According to the Australian Taxation Office (ATO), every year that you have an SMSF, you'll need to pay for an independent audit and the supervisory levy. Most SMSFs also pay for additional help, such as:

• preparing the SMSF annual return,

• valuations of the SMSF's assets,

• actuarial certificates for SMSFs paying income streams (pensions),

• financial advice,

• legal fees, for example if the trust deed needs to be amended,

• assistance with fund administration,

• insurance for members.

When an SMSF may be suitable

Most people believe a SMSF is worthwhile if you have a large super balance. But when making the decision to set up an SMSF, it's important to focus on the overall suitability rather than just your super balance. For example, even if you have a lower balance but have the time and skills to do most of the administration yourself, or if you expect more money will be added soon, then an SMSF may be for you. On the other hand, if you have a high super balance but don’t have the skills, time or experience to run an SMSF, you may decide to stay with your current super fund.

To help you work out the suitability of an SMSF, taking into considering your super balance, the Australian Securities & Investments Commission (ASIC) has prepared these case studies. You can also find more information on ASIC’s MoneySmart or the ATO website.

^{Sources: MoneySmart and Australian Taxation Office}