As a qualified financial planner, you might think I’d be the first to jump on the self-managed super fund (SMSF) bandwagon. After all, SMSFs offer the ultimate control over your superannuation, allowing you to choose exactly where and how your money is invested. But here’s the thing—I don’t have an SMSF, and for most people, you probably don’t need one either. However, my parents do have an SMSF, and their situation highlights when an SMSF can be a good idea.
The Appeal of SMSFs: Control and Flexibility
There’s no denying that SMSFs offer a level of control that other superannuation funds can’t match. You get to decide exactly what to invest in, whether it’s property, direct equities, or even more complex investment strategies. For some, particularly those with a strong understanding of investing, this control can be incredibly appealing.
In my parents’ case, they own a family farm, which is held within their SMSF for taxation purposes. This setup allows them to manage their farm as a key asset within their retirement strategy while taking advantage of significant tax benefits. If you’re self-employed and own commercial property, using an SMSF to hold that property can be an excellent tax strategy, particularly if it’s used in your business.
The Pitfalls of SMSFs: Costs and Complexity
While the control and flexibility of an SMSF are tempting, they come with significant downsides that aren’t always obvious at first glance. One of the biggest issues is cost. SMSFs are expensive to set up and maintain, with ongoing fees that can eat into your retirement savings. You’re not just paying for the investment management—you’re also on the hook for administrative costs, compliance, and audit fees, all of which can add up quickly.
Moreover, the administrative burden of running an SMSF is substantial. You’re responsible for keeping up with the regulatory requirements, ensuring your investments comply with superannuation laws, and filing the necessary paperwork. This can be a daunting task, especially if you don’t have a strong financial background. It’s not just a matter of making investments; it’s about managing an entire fund, which can be more work than many people realise.
Do You Really Need an SMSF?
Here’s where it gets interesting. Unless you have specific needs—like holding direct property investments, as in my parents’ case—there’s often no compelling reason to set up an SMSF. If you’re looking to invest in shares, leveraged investments, or direct equities, there are plenty of alternatives available through industry and retail funds that don’t come with the hefty price tag or administrative headache of an SMSF.
For example, if you want to invest in a broad range of equities or even explore leveraged investments, many retail super funds offer these options within their platforms. These funds provide a wide variety of investment choices at a fraction of the cost of running an SMSF, and they take care of all the administrative work for you. This means you can achieve similar investment outcomes without the complexity and expense of managing an SMSF.
The Importance of Financial Advice
Before making any decisions about your superannuation, it’s crucial to seek professional financial advice. While an SMSF can be a powerful tool in the right circumstances, it’s not the best fit for everyone. A financial advisor can help you weigh the pros and cons, taking into account your specific situation, goals, and risk tolerance.
In summary, while SMSFs offer unparalleled control, they are not a one-size-fits-all solution. For many people, the significant costs and administrative responsibilities far outweigh the benefits. If you’re not looking to invest in something as specific as property, there are more efficient ways to grow your superannuation without the need for an SMSF. My parents’ situation illustrates when an SMSF makes sense, but for most people, simpler and cheaper alternatives are often the smarter choice.
