A self-managed super fund, or SMSF, is an ATO-approved super scheme that is managed by the individual or personally appointed trustees, not by a professional, regulated super fund. That¡¯s to say, it¡¯s superannuation that¡¯s self-managed by and for the beneficiary and is subject to specific rules of operation.
The trustees of the fund manage it, while the members are its beneficiaries. In many cases, the trustees and the members are the same people.
The rules and regulations are set down by the ATO to maintain the integrity of the scheme and define what you can invest in, how and when you can access any investment returns and the information and external audits that you need to provide to the ATO.
While having control over your own super may sound appealing, it is not for everyone as recent statistics show ¨C in Australia just under 28,000 SMSFs set up each year but over 15,000 are wound up. The results from an SMSF, compared to a normal super fund, are dependent on a number of factors, including financial expertise, time, and initial deposit. The lower the balance in an SMSF, the harder it is to make a good return.
Source: ISA Analysis, ATO SMSFs - A Statistical Overview 2020-21.
The ATO has strict requirements for setting up and running an SMSF, such as drafting trust deeds, choosing trustee structures, the assets the fund can invest in, and what sort of reporting needs to be done. Then of course there¡¯s the researching, buying, holding, and selling of investment assets.
So, to be successful, you¡¯ll need to have a solid understanding of both how to fulfill the SMSF obligations and how to make sound investment decisions.
Alternatively, there are professional SMSF managers who can provide advice and administer the fund for you, but their fees do add to the costs of running an SMSF.
ATO and APRA data shows that industry super funds have outperformed all SMSF fund size categories on an annualised basis apart from those over $5m.*
Source: ISA Analysis, ATO SMSFs - A Statistical Overview 2020-21, APRA Annual Superannuation Bulletin, June 2022.
Note: Please see the footnote below on conditions applicable to this comparison.
If you decide that an SMSF is the better option for you, these simple tips could help you make the most of your DIY efforts.
*Past performance is not a reliable indicator of future performance. Consider a fund's PDS and your objectives, financial situation, and needs, which are not accounted for in this information before making an investment decision.
Footnote:
The returns of self-managed super funds (SMSFs) and APRA funds are not directly comparable due to some methodological differences in their calculation. The ATO changed the methodology for calculating SMSF returns in their 2019-20 statistical publication in line with recommendations made by the International Center for Financial Services (University of Adelaide), but some differences still persist. However, these differences are not sufficiently material to alter the findings that SMSFs (particularly those with assets less than $1 million) have underperformed industry funds on average over the past 5 years.
References
SMSF overview - Moneysmart
SMSF statistics - ATO
Set up requirements - ATO
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