The growth in self managed super funds (SMSFs) over the last decade has been enormous. Large numbers of retirees have chosen to take control of their superannuation.

A current trend however is for younger people to start their own SMSF. Recent statistics compiled by the Australian Tax office show that people under 45 accounted for 44.9% of new SMSF set-ups in the March 2015 quarter.

With younger Trustees comes lower starting balances. But how much is enough when establishing an SMSF?

A recent paper released by Australian Securities & Investment Commission (ASIC) made the argument that $200,000 should be a minimum. They found that depending upon how the fund is run, an SMSF needs between $200,000 and $500,000 to compete on costs with large public offer funds. In particular, their view is that SMSFs are not competitive on cost where they are worth less than $200,000.

The cost to run an SMSF will usually involve an accountant preparing financial statements and a tax return, an audit by an approved auditor and some fees and charges payable to government bodies. These will normally add up to at least $2,000 to $3,000 per year. So if cost is your only consideration then at least $200,000 to $300,000 is needed to make an SMSF worthwhile.

However the decision to start an SMSF should not be made simply on cost. Individual circumstances and needs must be properly considered. Some other factors that may influence the decision to start an SMSF include:

  • more investment choice – where a public offer fund has a limited range of investments, an SMSF can allow investment into a much broader range of assets, including direct property;
  • flexibility – An SMSF can allow its members to utilise some strategies that cannot be utilised in other super funds; and
  • estate planning – under an SMSF it is possible to have greater control over where and how your death benefits are paid.
  • life insurance – many public offer funds offer a single insurance option, or a small range of choices. An SMSF gives you access to every insurer in Australia. The ability to shop around can be especially beneficial for those with complex insurance needs and those who may have difficulty getting cover due to health or high risk occupations;
  • control – for some people, there is a real desire to have control over their money, even if it costs extra. SMSFs are about choice, so for some exercising this choice may be the most important factor.

The downside of SMSFs also need to be considered, particularly the extra responsibilities that come with being the Trustee of your own fund.

While a smaller balance super fund is very hard to justify on cost, each situation is different. For some people with $150,000 a SMSF might be the best option, and for others with $1 million in super it may not be appropriate at all. The decision to start a SMSF should be based on a range of factors and it is important to ensure the right decision is made.

If you, or someone you know is looking to start a SMSF, getting professional advice is the best first step. An adviser will take time to understand your situation and goals, and can provide balanced advice on whether an SMSF is an appropriate option.

If you would like more information please call 1300 ELSTON or email info@elston.com.au and an adviser will be in touch.