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.
What does the research tell us?
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.
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.
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.
If you would like to discuss whether an SMSF is right for you, please feel free to give me a call.
Pete is the co-founder and oversees the investment committee for Pekada. He is a qualified financial planner with 14 years of experience. Based in Melbourne, Pete is on a mission to help everyday Australians achieve financial independence and the lifestyle they dream of. Pete has been featured in Australian Financial Review, Money Magazine, Super Guide, Domain, American Express and Nest Egg.