Q: What is a self-managed super fund (SMSF)?

A self-managed super fund (SMSF) is a type of super fund that gives you great control over the management of your retirement savings. As with all super funds though, there are significant rules and regulations around what you are allowed to do within it. But once you meet these, you get a great amount of flexibility around how you’d like to invest your retirement savings. 

A self-managed super fund is privately managed, with up to 4 members (typically friends or family), all of whom act as directors and trustees. This differs from the other categories of super funds (retail super funds, industry super funds, public sector super funds, and corporate super funds) which have a separation between the fund members and the fund trustees. 

Having control over your super money does sound appealing, but along with the freedom to make investment decisions, it also comes with the work and risk involved in managing the investments. It is not suggested that you set up a self-managed super fund until you understand the amount of work involved.

The advantages of having a self-managed super fund include, but are not limited to:

  • Ability to Pool Funds:  Can pool the funds of up to 4 people making it possible to invest in options that may not be possible with the funds of just 1 person. 
  • Cost-Effective:  Technology has made it cost-effective to set up and manage your own self-managed super fund.
  • Efficient Tax Management:  The ability to exercise specific tax strategies that benefit the members.
  • Flexibility:  Flexibility to tailor the funds’ investment mandate to suit the members’ specific circumstances. 
  • Investment Choice:  Wider range of investment options compared to other superannuation fund categories
  • Protection from Creditors:  It is very difficult for a creditor to get access to an individual’s superannuation.

The disadvantages of having a self-managed super fund include, but is not limited to:

  • Trustee Burden:  The member and trustee take on the burden of all investment decisions and regulatory reporting.
  • Residency Requirement: Contributing members must be residing in Australia to keep regulatory compliance.
  • Running Costs: Fixed costs could be relatively high if the value of the fund is low.