Top considerations before investing in a SMSF

At first glance, a Self Managed Super Fund (SMSF) can seem appealing – perhaps some of your friends or family have recently taken the plunge. However, while they enable full control over your super, they are complex and are strictly regulated - with great power comes great responsibility. 

Key learnings covered in this topic

  1. Key considerations before setting up a SMSF 
  2. The complexity and regulation of SMSFs
  3. Your options as a CareSuper member.

Here are 8 things you should consider, before going down the SMSF path: 

1.    YOU are either a trustee or director of the SMSF – and are therefore responsible for it

There are two SMSF trustee structures. In one structure, all members of the fund are trustees and work in their individual capacity. In the other, a company is appointed as the trustee and the members are directors of the corporate trustee.

In both cases, it’s the members who are responsible for the SMSF. You must accept responsibility for all decisions, regardless of the outcomes. You can also expose yourself to significant risk if one/certain member(s) has more/all of the knowledge. So, make sure you have the knowledge and time to maintain it, so that if the unthinkable was to happen to any of the other SMSF members, all the expertise doesn’t go with them.

2.    Financial literacy is important

While you might have the means to outsource some of your investment requirements, all members of the SMSF should have an understanding of where their super is invested. Because at the end of the day, as the trustee/director, you’re responsible for the investment decisions made. This includes the fund’s investment strategy which considers risk, diversification, liquidity, solvency and insurance arrangements.

3.    You need time on your hands

When you have your super invested with a regular super fund – you can sleep soundly at night knowing your hard-earned super savings are being managed by an internal and external team of investment, compliance, legal and finance professionals.

Running a SMSF is not a hobby. If you go out on your own, you’ll need the time to complete the set-up activities; including establishing the Trust and Trust Deed, decide on fund members, set up a bank account, register with the ATO and create your investment strategy. Then there are a range of compulsory activities required throughout the year – like valuing assets, preparing accounts and statements, appoint a SMSF auditor, lodge your tax return, pay the SMSF levy and tax due, and review the investment strategy. 
Even if you appoint an SMSF administration service, or rely on other professionals to do some of this work for you, since you’re the trustee, you still need to be involved.  

4.    Ensure you’re compliant with super rules, or risk penalties

If you fail to comply with super law, the ATO can impose a range of penalties, including fines on you and your fund. These penalties can vary depending on the severity of the breach, and in some cases be severe.

5.    Be aware of vested interests

Running a SMSF can often mean seeking expertise from other professionals, so think about if there’s anyone who’s guiding your consideration around setting up a SMSF. If yes, consider if they’ll benefit from the set up or ongoing management or reporting requirements? While that’s not a reason on it’s own to not proceed, it’s good to have considered all angles before you go ahead. It may be worth your time getting a second opinion first.  

6.    Understand your exit strategy before you even get started

There are a number of possible trigger events that might mean you need to exit the SMSF. Some of these include relationship breakdown of fund members, death of a SMSF member, loss of capacity and becoming disqualified from running the SMSF.

Winding up a SMSF can be complex, with paperwork, possible tax implications, costs and decisions to be made around where you’ll invest your super after the wind up’s complete (if required). These requirements and impacts vary depending on: 

  • The trust deed and structure of the SMSF
  • The SMSF assets
  • The unique circumstances of your SMSF.

7.    Absence of government compensation

APRA-regulated super funds pay a levy to the government, meaning if something goes wrong, they have access to government compensation. Members’ money is protected. However, this isn’t the case with a SMSF. While SMSFs may have legal options in these circumstances, there’s no guarantee that compensation will be awarded.

8.    If you need to lodge a complaint against another SMSF member, you could go through the courts at your own expense

SMSF members can’t always lodge complaints or manage disputes in the same way as regular super fund member can. If they have a disagreement, they may need to rely on alternate dispute resolution techniques or through the courts at their own expense. 

In short …

SMSFs may be popular, but they’re not suitable for everyone.

If you’re not confident you could get a better result by managing your own super, you may be better off leaving it be managed by super professionals in a high-performing, low-cost super fund like CareSuper. Our active investment strategy aims to both grow and protect your super savings, and we work hard to deliver strong returns over the long term.

Talk to an expert

Looking to get more hands-on with your super? We’re here to help you make informed decisions that align with your financial goals. Our financial planners can help you review your investment strategy, including which of our 12 investment option(s) is right for you, or find out more about our Direct Investment option (DIO) if you’re looking to take more control. Book a call-back.  

If you’re interested in exploring SMSFs, the ATO has a range of resources and videos that may be helpful. 

Information correct as at 13 February 2024.

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