SMSF cost structure
Self-Managed Superannuation Funds (SMSFs) offer significant cost advantages over retail super funds, especially as your balance grows. A SMSF is a private superannuation fund that you manage yourself. A maximum of four people can be participants of the same SMSF.
All members of the SMSF are trustees of the fund, or directors of a corporate trustee. The trustees/directors are responsible for the management and administration of the fund.
You don't have to do it alone though, you can appoint an advisor to manage the fund for you, or you can use a platform to keep you informed and compliant, while doing the investing yourself.
Fee structure comparison
Retail super funds typically use percentage-based fees that scale with your balance, while SMSFs offer more predictable fixed-cost structures. This creates a crossover point where SMSFs become more cost-effective which is lower than most people expect; especially when you consider that four people can share the costs of an SMSF.
Retail super funds will in general be better for people just starting out, or not wanting to take the responsibility of managing their own superannuation.
At large balances Advisors can be cheaper than retail funds, but taking ownership of your own SMSF should be the first step into financial independence for most people.
A joint balance of $100k is the point where SMSF with SelfManaged can be cheaper than retail funds. If you have four people you can each contribute $25k in the first year and the SMSF will be cheaper than retail funds from year 2.
30-Year Balance Growth Comparison
Projection assumes 7% annual return, $20,000 annual contributions ($17,000 after 15% contribution tax), over 30 years. SMSF with SelfManaged can be cheaper than retail funds at joint balances as small as $50k.
Benefits Beyond Cost Savings
While cost savings are significant, SMSFs offer additional advantages that can enhance your retirement outcomes:
Investment ControlYou have complete control over your investments, allowing you to apply your own investment strategy and risk tolerance. You can choose to invest in a wide range of assets, including direct shares, property, and alternative investments. You can even go into debt to purchase property.
A downside of large super funds is there are effectively not enough assets in Australia for them to invest in, the majority of the fund will be invested in the ASX200 because when they have $2 billion to invest they have to buy into big comapnies. Tax MinimisationYou can hold assets until pension phase to avoid paying capital gains tax. You can also choose to invest in capital appreciating assets which reduces tax as you move into pension phase without selling.
Tax Benefits Example: Asset Holding Strategy
| Scenario | Purchase Price | Sale Price | Capital Gain | Tax Rate | Tax Payable |
|---|---|---|---|---|---|
| Retail Fund (accumulation) | $100,000 | $700,000 | $600,000 | 15% | $90,000 |
| SMSF (accumulation) | $100,000 | $700,000 | $600,000 | 15% | $90,000 |
| SMSF (pension phase) | $100,000 | $700,000 | $600,000 | 0% | $0 |
Over 30 years a 7%pa growth asset would be worth $700k, by holding assets until pension phase, SMSF members can eliminate capital gains tax entirely, saving $90k in tax.
SMSF Cost Breakdown
When running an SMSF, you'll encounter several types of costs:
- Setup Costs: When establishing a new SMSF, you'll pay setup fees for trust deeds, ASIC and State registration fees, and initial compliance work.
- Audit & Compliance: Every SMSF must be audited annually by an independent auditor to ensure it complies with superannuation laws. Automated platforms can reduce this significantly.
- Tax Return Preparation: Your SMSF needs to lodge an annual tax return with the ATO. Accountants charge for this service, while automated platforms can handle it for much less.
- Investment Management: If you use an manager, they'll charge ongoing fees. If you manage investments yourself, this cost is zero.
- Administration: Someone needs to handle the day-to-day paperwork, record keeping, and compliance tasks. Advisors charge for this service, while self-managing costs less, and automated platforms can reduce it significantly.
- Platform/Software: You need systems to track investments, generate reports, and maintain records. Advisors often charge for their platform, while integrated platforms include this in their fee.
- Transaction Costs: Every time you buy or sell investments, you pay brokerage fees. Advisors often buy many individual shares to "diversify" your portfolio instead of using a simple index fund. It actually increases transaction costs significantly since advisors typically receive commissions on each transaction made through their broker.
- Insurance: Unlike retail super funds that often include life and TPD insurance, SMSFs require you to arrange separate insurance policies if you want coverage.
Using a bespoke advisor to manage your SMSF can cost you $13,300 to $25,500 per year, using a platform you can manage your SMSF for $1,500 per year.
When SMSF Makes Sense
SMSFs aren't suitable for everyone. Consider these factors when deciding:
SMSF Suitability Checklist
| Factor | Suitable | Not Suitable | Notes |
|---|---|---|---|
| Combined balance above $100,000 | ✓ | ✗ | Cost-effective threshold |
| Investment knowledge | ✓ | ✗ | Or willingness to learn |
| Time for management | ✓ | ✗ | A few hours a year |
| Complex strategies | ✓ | ✗ | Property, direct shares, etc. |
| Family involvement | ✓ | ✗ | Multiple members/trustees |
Common SMSF Mistakes
- Underestimating costs: Not accounting for all compliance and administration costs
- Overestimating skills: Taking on complex strategies without sufficient knowledge
- Poor record keeping: Inadequate documentation leading to compliance issues
- Related party transactions: Not understanding the strict rules around related party dealings
- Liquidity management: Not maintaining sufficient cash for pension payments and expenses
- Insurance gaps: Failing to arrange appropriate life and TPD insurance
- Investment concentration: Putting too much in a single asset or strategy
FAQ
While there's no legal minimum, SMSFs typically become cost-effective at balances above $200,000. Below this, retail super funds may be more economical due to fixed SMSF costs.
With proper systems and tools, SMSF management can take as little as 1-2 hours per month for basic administration. More complex strategies may require additional time for research and decision-making.
Yes, you can use advisors for specific advice while maintaining control. Many SMSF trustees use advisors for investment strategy, tax planning, or compliance advice while handling day-to-day administration themselves.
Minor mistakes can usually be rectified, but serious breaches may result in penalties or the SMSF losing its complying status. This is why proper systems and ongoing education are crucial.
Yes, you can roll over your existing super balance to an SMSF. This is typically done as a cash transfer, and you'll need to consider the timing of any in-specie transfers of investments.
While not mandatory, life and TPD insurance are important considerations. You may need to arrange separate policies as retail super funds often include insurance that may not be available in SMSFs.