SMSFs are not for everyone, but for those individuals where an SMSF is entirely appropriate for them, 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 provide 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.
So what does the recently released 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 |
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. 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.
We recommend discussing whether an SMSF is right for you and your specific circumstances with an SMSF Specialist.
Disclaimer: The information contained in this document is provided for educational purposes only, is general in nature and is prepared without taking into account particular objective, financial circumstances, legal and tax issues and needs. The information provided in this article is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should assess its relevance to your individual circumstances. While SMSF Association believes that the information provided in this article is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the Corporations Act 2001.