Self Managed Superannuation Funds (SMSF)

Why would someone be interested in setting up a Self Managed Super Fund (SMSF)?

People opting to set up a SMSF will be largely motivated by the fact that they will have a greater degree of control over their superannuation assets. As well, small funds enjoy some important exceptions in respect of their investments.

SMSFs are funds that have fewer than 5 members (i.e. a maximum of 4) and all members are trustees of the fund. SMSFs are also referred to as ‘Do-It-Yourself’ or ‘Mum and Dad’ funds as they are often operated by small businesses or families.

SMSFs are regulated by the Australian Taxation Office (ATO) and represent the majority of funds in Australia. Since 1999, the sector has grown from around 200,000 SMSFs with $55 billion in assets under management, to over 600,000 SMSFs totalling more than $750 billion in assets. Today, SMSFs comprise nearly one third of Australia’s $2.76 trillion retirement system.

SMSFs appeal to many people wanting to make contributions into superannuation because, in their capacity as both trustee and member, they have control over how their retirement savings are managed and invested.

Some of the main reasons why someone would be interested in setting up a SMSF include:

  • Complete control over the investment decision making process (members are happy to take investment advice from a licensed financial adviser or stockbroker, but the ultimate investment decision rests with them);
  • They are property people and want to hold direct commercial or residential property inside their SMSF;
  • They have a legitimate business reason for setting up a SMSF (ie. they want their SMSF to own their commercial business premises so the business can rent the property off the SMSF).

However, SMSFs will frequently require assistance in areas such as fund administration, investment management, taxation or legal advice and will engage these services externally. For example, the trustees of a SMSF may manage their own investments with the help of a stockbroker or financial adviser, but pay an accounting firm to take care of the compliance and administration of their fund, such as the reporting, tax and accounting requirements.

SMSFs comprise nearly one third of Australia’s $2.76 trillion retirement system