What is a Self Managed Super Fund?
Have you ever wondered what a Self Managed Super Fund is and whether you should have one?.
Do you know someone with one who keeps telling you to get on board?
In this blog we talk about what is a Self Managed Super Fund and what the rules are around having one. It’s quite a complicated topic so I will do my best to keep it simple.
What is a Self Managed Super Fund?
Firstly, a Self Managed Super Fund, commonly know as a SMSF is a private super fund that you manage yourself. You put the money you would normally put into a retail or industry fund into your own SMSF. You also get to choose the investments and the insurance that goes with them.
Whilst it can sound really appealing, it also comes with quite a lot of work and responsibilities.
There are rules around membership of the fund as well as risks in choosing your own investments.
Some of the responsibilities include:
- You are personally liable for all the fund’s decision even if you get help from a professional
- Your investments might not bring you the returns you expect
- You are responsible for managing the fund even if your circumstances change, like if you lose your job
- If you lose money through theft or fraud you won’t have access to any special compensation schemes
- You could lose insurance if you move from a regular super fund to an SMSF
The set-up and running costs can be high. Ongoing costs include:
- investing
- accounting
- auditing
- tax advice
- legal advice
- financial advice
In 2019, the average operating cost of running an SMSF was $6,450.
If you look at the historical performance of superannuation funds across industry, retail and SMSF, SMSFs have not performed as well as the others. Industry and retail funds use professionals who are highly trained to manage their investments.
Why would you use a SMSF?
Part of the appeal of having a SMSF is having the control of your finances and investments and having access to a broader range of investments. There are some very strict rules about what you can invest your super in. These restrictions on investments are on the ATO website. If you decide to set up a SMSF, the ATO website is a great resource as they have section on self managed super funds which explains what you need to do to set up your fund and especially how to comply with regulations.
It’s really important to get financial advice before you make a decision on any investments from a licensed financial advisor.
Yours in Finance
Sarah x