SMSFs can be an excellent vehicle to save for your retirement, but they are certainly not suitable for everyone. To determine whether an SMSF is suitable for your circumstances, you should consider the following characteristics of an SMSF.

The main characteristics of an SMSF include:

Greater control: SMSFs give you the freedom to invest and build your retirement savings as you choose.

Flexibility: An SMSF can provide wider investment choices and give more flexibility in how you construct your investment strategy and pass on your wealth.

Cost efficiencies: Depending on your circumstances, an SMSF may offer potential costs savings (especially if you pool your super with family members to share the running costs).

Potential tax savings: SMSFs can provide more scope for individuals to manage the tax effectiveness of their retirement savings. This is usually more limited in a mainstream fund environment.

Who can be involved in an SMSF?

Almost anyone can set up an SMSF together. SMSFs can have up to four members; usually they are all in the same family and the most common combination is you and your partner or just you if you are single. But there are other scenarios, sometimes people who are in business together set up a shared SMSF, sometimes children belong to their parents’ SMSF and sometimes even people who don’t actually live in Australia right now belong to an SMSF. All of these are perfectly legal but sometimes have extra requirements.

When you set up an SMSF, you generally also have to be a “trustee” or a director of a company that is the trustee of your fund. Trustees are the people who are legally in charge of the fund. Some people are specifically not allowed to be a trustee. This includes people who:

  • have ever been convicted of an offence involving dishonesty
  • have ever been subject to a civil penalty order imposed by superannuation law
  • are considered insolvent under administration
  • are an undischarged bankrupt
  • have been disqualified by a regulator e.g. ATO or APRA

There are certain circumstances where you can’t be a trustee but someone else is allowed to do it for you. Under these circumstances you can still have an SMSF. This is possible if:

  • You are under 18 and your parents are the trustee for you
  • You are disabled and have someone who has been legally appointed to manage your affairs
  • You have given someone an “enduring power of attorney” (a legal document that allows them to act on your behalf in a number of ways, including being the trustee of your SMSF)

There are a number of risks and other potential issues to consider.

Active involvement: Running an SMSF requires you to become more actively involved in managing your investments and ensuring your fund complies with all the rules and regulations. That is the natural trade-off of having the control and flexibility of your own super fund.

Knowledge and expertise requirements: Self-managing your retirement investments can require you to have the knowledge and skills to make your own investment decisions and be aware of all your legal responsibilities as trustee (and/or to be able to select and work with the right advisers to support your decisions). In contrast, a mainstream fund can represent a simpler “set and forget” approach

Costs: Running an SMSF will incur various costs (including annual accounting, audit and tax fees). It is important that your super fund balance is large enough to ensure the operation of your SMSF is cost-effective.

Potential loss of benefits: Most mainstream funds offer group life and disability insurance policies to their members. Setting up your own SMSF will usually mean that you will have to arrange for separate insurance cover (which may be more expensive or difficult to implement depending on your personal circumstances).

ASIC has useful guides which you should also consider:

If you are considering setting up your own SMSF, it is important to understand both the advantages and the risks and responsibilities that come with operating an SMSF, and if appropriate, to seek professional advice from your accountant or tax adviser.