SUPER FACTS | How much money do you need to start an SMSF?

New research released

Self-Managed Superannuation Funds (SMSF) can be a great way to save for your retirement, but they are not for everyone. For those individuals where an SMSF is appropriate for their circumstances, the benefits can be considerable.

In the context of ongoing public debate regarding the appropriate minimum size for an SMSF, new research has been provided to deliver insights into the true costs of running an SMSF. And the research shows SMSFs are cheaper to run than many people may think.

The findings allow SMSF trustees and potential SMSF trustees to compare appropriate estimates of fees for differing SMSF balances with institutional superannuation funds (commonly referred to as APRA regulated funds).

The costs include establishment, annual compliance costs, statutory fees and some investment management fees. Direct investment fees have been excluded.

What does the research tell us?

SMSFs with less than $100,000 are not competitive in comparison to APRA regulated funds (SMSFs of this size would generally only be appropriate if they were expected to grow to a competitive size within a reasonable time).

SMSFs with $100,000 to $150,000 are competitive with APRA regulated funds (SMSFs of this size can be competitive provided the Trustees use one of the cheaper service providers or undertake some of the administration themselves).

SMSFs with $200,000 to $500,000s are competitive with APRA regulated funds even for full administration. (SMSFs above $250,000 become a competitive alternative provided the Trustees undertake some of the administration, or, if seeking full administration, choose one of the cheaper services).

SMSFs with $500,000 or more are generally the cheapest alternative regardless of the administrative options taken. (For SMSFs with only accumulation accounts, the fees at all complexity levels are lower than the lowest fees of APRA regulated funds).

This research highlights that SMSFs with a low complexity can begin to become cost-effective at $100,000. This is a significant departure from what many had believed to be the case. For simple funds, $200,000 is a point where SMSFs can become cost competitive with APRA regulated funds or even cheaper if a low cost admin provider is used. With the proposed expansion to six member SMSFs, we may see many more take up this option at this threshold.

Comparing 2 member funds

From a cost perspective, the real benefit of an SMSF is when it achieves scale in balance and this can occur when members pool their superannuation savings.  The below comparison can be used to grasp the ranges you might fall into.

Combined Balance SMSF Compliance Admin (2 members) APRA regulated fund Low fees (2 members)
$50,000 $1,689 $503
$100,000 $1,690 $863
$150,000 $1,691 $1,216
$200,000 $1,693 $1,566
$250,000 $1,694 $1,942
$300,000 $1,696 $2,301
$400,000 $1,699 $3,013
$500,000 $1,703 $3,725

Comparison of annual costs of SMSFs ($) – Accumulation Accounts

The below table provides a comparison of the different annual costs incurred by an SMSF.  It provides a comparison between funds where the Trustees undertake some of the administration themselves, or seek full administration services.   The costs below are a guide only, and will vary between SMSFs due to the different investment mixes (as some funds may hold listed share portfolios while others hold property and unlisted investments) and complexity of the fund’s transactions.

Balance SMSF Compliance Admin SMSF Full Admin
Low Mid High Low Mid High
$50,000 $1,189 $1,689 $2,453 $1,514 $2,134 $3,074
$100,000 $1,190 $1,690 $2,454 $1,515 $2,135 $3,075
$150,000 $1,191 $1,691 $2,455 $1,516 $2,136 $3,076
$200,000 $1,193 $1,693 $2,457 $1,518 $2,138 $3,078
$250,000 $1,194 $1,694 $2,458 $1,519 $2,139 $3,079
$300,000 $1,196 $1,696 $2,460 $1,521 $2,141 $3,081
$400,000 $1,199 $1,699 $2,460 $1,524 $2,144 $3,084
$500,000 $1,203 $1,703 $2,467 $1,528 $2,148 $3,088

 

SMSF Fee above range for Retail and Industry funds SMSF Fee within range for Retail and Industry Funds SMSF Fee below range for Retail and Industry Funds

 But it’s more than cost

When determining whether an SMSF is right for you, your analysis must go further than just a simple comparison of the costs versus APRA Regulated Funds. It should also factor in your retirement and income goals and whether you have the desire, time and expertise to take on the role of an SMSF trustee. An SMSF offers you more control and flexibility, particularly with the investment choices.  In addition to investing in fixed interest, listed shares and managed funds, an SMSF can invest in direct or indirect property, unlisted companies and trusts, commodities and unlisted managed funds. However, it’s also worth factoring in SMSF members may not receive the same level of protection in the event of theft or fraud that members in APRA regulated funds do.

How can we help?

If you are considering establishing an SMSF, additional SMSF Trustee educational resources can be found at https://vincents.com.au/business-advisory/superannuation-advisory/resources/ and https://www.ato.gov.au/uploadedfiles/content/spr/downloads/spr46427n11032.pdf

As SMSF Specialist Advisers, your Vincents SMSF team can also help clear up any additional questions you might have about running your own SMSF.

Want to know more?

If you would like to find out more about property and Self Managed Super Funds, please contact Brett Griffiths, our Superannuation Advisory Director, for assistance.

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

 

 

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