Self managed super fund trustees dedicate more than eight hours every month to managing their retirement savings—that’s over 100 hours annually. A self managed super fund (SMSF) is a retirement savings vehicle where members take complete control, acting as trustees for their own benefit.
Unlike traditional superannuation options, SMSF investing allow members to make their own investment decisions. However, this freedom comes with significant responsibilities. All members must serve as trustees and are accountable for investment choices and compliance with superannuation and tax regulations. Furthermore, an SMSF can have no more than six members, making it a relatively exclusive structure.
This guide explains what a self managed super fund is, how it works in practice, and whether establishing one might suit your retirement planning needs. We’ll specifically examine the advantages of self managed super funds in Australia, explore the practical aspects of how a self managed super fund works, and help you determine if an SMSF aligns with your financial goals.
What is a Self-Managed Super Fund (SMSF)?
A self managed super fund (SMSF) is a private superannuation vehicle in which members take full responsibility for their retirement savings. With over 1.1 million SMSFs managing AUD 1339.40 billion in assets across Australia, this approach to retirement planning continues to grow in popularity.
Definition and Comparison with Retail/Industry Super Funds
An SMSF differs fundamentally from other superannuation options through its governance structure. While professional licenced trustees manage retail and industry funds, an SMSF places control directly in members’ hands. SMSFs can have up to six members, all of whom must act as trustees or directors of a corporate trustee.
The primary distinctions between SMSFs and traditional super funds include:
- Control and compliance: SMSF members bear full responsibility for compliance with superannuation laws, whereas in retail/industry funds, this responsibility rests with professional trustees.
- Investment decisions: SMSF trustees develop and implement their own investment strategy, making all investment decisions. In contrast, members of other super funds typically can only control the risk level or basic asset mix.
- Regulatory oversight: The Australian Taxation Office (ATO) regulates SMSFs, while the Australian Prudential Regulation Authority (APRA) oversees retail and industry funds.
- Dispute resolution: No government compensation scheme exists for SMSFs, and the ATO does not resolve member disputes.
How Does a Self Managed Super Fund Work?
In practical terms, an SMSF operates as a private trust structure specifically designed for retirement savings. All members collectively manage the fund’s operations, investments and compliance obligations.
Members must establish an investment strategy that complies with superannuation laws and determines how contributions and existing funds will be allocated across various asset classes. Additionally, trustees must consider whether to purchase insurance cover for members, although premiums may be higher than those available through larger funds.
Consequently, running an SMSF demands significant time commitment and financial knowledge. Members must engage directly with the ATO regarding tax obligations and compliance matters, assuming personal liability for any breaches of superannuation legislation.
Who can be a Member of an SMSF?
Not everyone qualifies to join an SMSF. Members must:
- Willingly consent to membership and accept trustee responsibilities.
- Maintain good financial standing (not bankrupt or disqualified by regulators)
- Do not have employer/employee relationships with other members unless they are relatives.
People under 18 or those with legal disabilities can become members, but cannot serve as trustees themselves. In such cases, a parent, guardian or holder of an enduring power of attorney typically acts as trustee on their behalf.
Individuals living overseas can belong to Australian SMSFs, provided the fund meets residency rules, including maintaining Australian-based assets and control.
How SMSF Investing Works in Practice
SMSF trustees enjoy greater investment flexibility than traditional superannuation funds, yet must navigate strict regulatory requirements. Understanding how SMSF investing works helps trustees balance freedom with compliance obligations.
Choosing and Managing SMSF Investments
Effective SMSF investment management requires trustees to ensure all fund assets comply with superannuation laws. Each investment must show clear legal ownership by the fund, be made on an arm’s-length commercial basis, and always reflect actual market value. Moreover, all investment decisions must satisfy the sole purpose test—meaning they exist exclusively to provide retirement benefits to members or death benefits to beneficiaries.
Investment decisions that fail to meet these standards could result in severe penalties, including making the fund non-compliant, disqualification of trustees, or prosecution. For instance, any investments in collectables such as artwork or wine cannot provide present-day benefits to related parties—they cannot be displayed in a member’s home or used personally.
Investment Strategy Requirements Under the Super Law
Super laws require trustees to prepare and implement a written investment strategy tailored to their fund’s circumstances. This strategy must address:
- Risk and likely return from investments
- Composition and diversity of investments
- Liquidity of fund assets for expenses and benefit payments
- Whether to hold insurance cover for members
The Australian Taxation Office (ATO) has clarified that simply specifying investment ranges of 0-100% for each class is insufficient. Instead, trustees must articulate how investments will achieve retirement objectives and regularly review the strategy—at least annually and after significant events such as market corrections or when members start receiving pensions.
Standard Asset Classes Used in SMSFs
As of December 2024, Australian SMSFs allocated their AUD 1,017,839 million in assets across various investment classes. Listed shares represent the largest allocation at 27.28% of all SMSF assets, followed by cash and term deposits (15.86%), unlisted trusts (13.23%), and non-residential real property (10.78%).
Asset allocation often varies based on fund size and members’ life stages. SMSFs in the retirement phase typically hold more listed shares (58.88%) compared to those in the accumulation phase (43.55%), reflecting a preference for liquid, income-producing assets. Conversely, smaller SMSFs (under AUD 305,798) typically maintain higher cash allocations—over 39% compared to larger funds.
Other permitted investments include managed funds, direct property, fixed-income securities, and, under strict conditions, collectables and cryptocurrencies. Nevertheless, certain investments are subject to restrictions, particularly transactions with related parties, which could trigger penalties or the loss of tax concessions.
Risks and Responsibilities of SMSF Trustees
Becoming an SMSF trustee carries significant legal responsibilities that extend beyond simply managing investments. All trustees face strict obligations under superannuation laws, with serious consequences for non-compliance.
Legal Obligations and Compliance Risks
SMSF trustees must exercise honesty, care, skill, and diligence in all fund matters. Notably, trustees must act in the best financial interests of all members and meet the sole purpose test—ensuring the fund exists exclusively to provide retirement benefits to members or, if a member dies before retirement, death benefits. Furthermore, trustees remain responsible for decisions made by co-trustees, even if they do not participate in those decisions.
Failure to comply with these obligations can result in severe penalties:
- Administrative penalties (AUD 504.57 per penalty unit as of November 2024)
- Disqualification as a trustee
- Fund assets are being frozen
- Loss of concessional tax treatment—resulting in a 45% tax rate
Indeed, penalties cannot be paid or reimbursed from fund assets, meaning trustees bear personal financial responsibility. For individual trustees, penalties apply to each trustee separately, whereas with corporate trustees, directors are jointly liable.
Fraud or Theft
Unlike members of APRA-regulated funds, SMSF members have significantly fewer protections against fraud or theft. Indeed, no government or industry compensation scheme exists for SMSF members who suffer losses due to fraudulent activity.
This difference became evident in the 2011 Shail Superannuation Fund case, where one trustee transferred AUD 5.29 million to a personal overseas account. Despite the other trustee being unaware of the transaction, both were held liable for substantial tax penalties—demonstrating that trustees cannot escape responsibility through ignorance.
Impact of Relationship Breakdowns or the Death of a Member
During relationship breakdowns, superannuation is considered property that can be formally divided or “split”. Subsequently, this process requires either a formal Superannuation Agreement (with legal advice) or a Court Order—informal arrangements are not legally permitted.
Special provisions apply to CGT when transferring assets between funds due to a relationship breakdown. The cost base transfers with the asset, preventing immediate capital gains tax implications.
Following a member’s death, trustees must correctly identify beneficiaries and pay death benefits promptly. The fund’s trust deed takes precedence over the deceased’s will, hence, trustees must consider:
- Any binding or non-binding death benefit nominations
- Whether benefits should be paid to the deceased’s estate
- If the recipient is a dependant, whether the payment should be as a lump sum or an income stream
Proper governance around these events is essential, as disputes can lead to costly court actions.
Costs, Time and Knowledge Required to Run an SMSF
Establishing and managing a self managed super fund involves substantial financial outlay, time investment, and specialised knowledge. Understanding these requirements helps potential trustees decide if an SMSF aligns with their capabilities and resources.
SMSF Setup and Ongoing Costs
The financial burden of running an SMSF varies depending on the fund’s complexity and size. Initial setup costs typically include trust deed preparation (AUD 611.60–700) and, for those choosing a corporate trustee, ASIC registration fees (AUD 912.81) plus company documentation (AUD 611.60–600). Overall, establishment costs may reach AUD 2,140.59.
Ongoing annual expenses consist of fixed and variable components. All funds must pay the ATO supervisory levy (AUD 396.01) and undergo professional audits (approximately AUD 840.94). According to ATO data, the median total expenses for funds between AUD 305,798.05 and AUD 764,495.12 are AUD 11,265.60. Research indicates SMSFs become cost-competitive with retail and industry funds once balances exceed AUD 305,798.05.
Time Commitment: 100+ hours per year
Beyond financial costs, trustees must allocate considerable time to fund management. Statistics show SMSF trustees typically spend more than eight hours monthly managing their fund—exceeding 100 hours annually. This time allocation covers essential activities like:
- Researching potential investments
- Keeping current with superannuation and tax regulations
- Reviewing and adjusting investment strategies
- Managing accounting records and arranging audits
Financial and Legal Knowledge Expectations
Effective SMSF management demands substantial financial acumen and legal literacy. Trustees require knowledge to:
- Develop investment strategies aligned with retirement goals and risk tolerance
- Comply with complex taxation and superannuation legislation
- Understand various investment markets and construct diversified portfolios
Many experienced administrators caution against using an SMSF as a learning vehicle for investing. As Kris Kitto, Director of Grow SMSF, advises: “An SMSF is not the best place to learn how to invest. The more experience you have, the better—there is nothing wrong with waiting a few years”.
How to Set Up and Manage an SMSF
Setting up an SMSF involves several critical procedural steps that must be followed carefully to ensure compliance with superannuation laws and regulations.
Choosing Individual and Corporate Trustee Structures
The trustee structure decision affects ongoing administration and asset management. In 2022, approximately 66% of all SMSFs had a corporate trustee structure. With individual trustees, each member must serve as a trustee, and the fund can have up to six members. On one hand, individual trustees face lower initial costs but require title changes to all assets when trustees change. On balance, corporate trustees offer better asset protection and administrative simplicity when members join or exit the fund. Corporate trustees primarily benefit funds through succession planning, as companies have indefinite lifespans.
Registering with the ATO and Creating a Trust Deed
Initially, SMSFs must be legally established before registration, requiring:
- Selection of trustee structure
- Trustee appointment
- Creation of a trust deed
- Holding fund assets
Registration with the ATO must occur within 60 days via the Australian Business Register, including the application for an ABN and TFN. The trust deed—a foundational legal document—must outline rules for fund operation, covering trustee powers, membership rights, and benefit payment conditions. Forthwith, after registration, trustees must establish a bank account and obtain an electronic service address.
Getting Professional Advice: Auditors, Accountants, Advisers
All SMSFs require an annual audit by a registered SMSF auditor. Correspondingly, tax agents assist with annual returns and interactions with the ATO. Financial advisers review investment strategies and offer guidance on permissible investments, whilst legal practitioners help prepare trust deeds and provide advice on compliance matters. Although professional advisers provide valuable expertise, trustees remain ultimately responsible for all fund decisions.
Conclusion – Self Managed Super Fund
Self managed super funds represent a significant commitment for Australians seeking direct control over their retirement savings. Throughout this guide, we have examined the fundamental aspects of SMSF investing, highlighting both their potential benefits and considerable responsibilities.
SMSF investing differs markedly from traditional superannuation options through their governance structure, placing control directly with members rather than professional trustees. This control extends to investment choices across various asset classes such as shares, property, cash and potentially alternative investments like collectables.
SMSFs suit individuals with sufficient financial knowledge, time availability and appropriate balances. Conversely, those planning permanent overseas residence, lacking investment experience or preferring low-maintenance options, should consider alternatives. The trustee structure decision—individual versus corporate—significantly impacts long-term administration and succession planning.
Ultimately, SMSFs offer substantial control and flexibility but demand significant responsibility. Prospective trustees should evaluate their circumstances honestly, seek professional advice where needed, and understand that while SMSFs grant investment freedom, this freedom carries corresponding obligations to act prudently, comply with regulations, and safeguard members’ retirement interests.
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What is the minimum balance required to start an SMSF?
While there’s no legal minimum, most financial advisers recommend a balance of around £150,000 to £200,000 to make an SMSF cost-effective compared to traditional superannuation funds.
How much time does managing an SMSF typically require?
SMSF trustees generally spend over 100 hours per year on fund management, including researching investments, staying up to date on regulations, and handling administrative duties.
Can I use my SMSF to invest in property?
Yes, SMSFs can invest in direct property, including residential and commercial real estate. However, strict rules apply, particularly regarding transactions with related parties and personal use of the property.
Are SMSFs protected against fraud or theft?
Unlike members of retail or industry super funds, SMSF members do not have access to government compensation schemes in cases of fraud or theft. This emphasises the importance of careful management and oversight by trustees.
