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How much super do you need to set up an SMSF?

The amount of money you should have in super to make it worthwhile setting up your self-managed super fund (SMSF) is a contentious issue.

Over the years, there has been much discussion and analysis by the Australian Taxation Office (ATO), the Australian Securities and Investments Commission (ASIC) and the Productivity Commission, but no clear answers. Just a consensus that having at least $500,000 in super is a good yardstick, although starting with less may be justified in certain circumstances.

That consensus was reinforced by a comprehensive survey of more than 100,000 SMSFs by Rice Warner for the SMSF Association. But its report – Cost of operating SMSFs 2020 – went further, comparing SMSFs of different sizes and complexity with retail and super funds on a like-for-like basis, with some surprising results.

In this article, we’ll provide you with the latest statistics and perspectives on this vexed issue to help you make your own informed decision.

A cost-benefit analysis

One of the issues that skewed previous attempts to quantify costs was that there was no breakdown of one-off set-up costs and ongoing expenses associated with operating your SMSF. This meant that set-up costs incurred in one year only skewed the average for all funds. There is also a wide range of investment fees and other charges that reflect the scope and complexity of SMSFs themselves.

That said, the benefits must outweigh these costs by as much as possible. Otherwise, you may be better off in a public fund with lower prices on your time as well as your finances. But when doing your cost-benefit analysis, it’s important to compare like with like.

Set-up costs include professional legal and accounting advice to establish the SMSF’s trust structure and trust deed.

Ongoing costs for services and reports required by the regulation include:

  • The preparation of financial statements
  • The preparation and submission of a tax return to the ATO
  • The payment of a compulsory annual SMSF supervisory levy to the ATO
  • A corporate trustee fee (if applicable)
  • An annual audit of all financial records. An ASIC-approved auditor must conduct this to ensure that all fund activities are fully compliant with super legislation. 

An SMSF may also need to pay actuarial costs to determine eligible member pension payments.

While these ongoing costs can’t be avoided, trustees can reduce their costs by handling some of the fund’s administration themselves.

There are optional costs, such as fees for professional investment advice or management services (if fund trustees choose to hire them).

And it doesn’t end there. There are also costs associated with winding up an SMSF. The amount will depend on the complexity of your SMSF’s financial arrangements and the wind-up process.

How do SMSF costs compare?

Once you have a clearer picture of what an SMSF is likely to cost someone with your level of assets and willingness, or not, to carry out some of the administration, you can more accurately compare it with other types of funds like-for-like basis.

To do this, Rice Warner examined the costs for the set-up and running of SMSFs with different balances, whether trustees outsource only their compliance administration or all their administration, and whether funds use low, medium or high fee services.

The table below shows the range of costs for SMSFs of various size balances with shaded areas indicating whether the fees are above, within or below the range for retail and industry super funds with similar proportions.

Note: The fees are fund-level costs, so they will be the same regardless of whether the SMSF has one or more members.

SMSFs with balances of $500,000 or more are generally cheaper than retail or industry funds. Rice Warner’s previous research back in 2013 had merely indicated that costs for funds of this size were competitive, but only cheaper than the alternatives if trustees do some or all the administration.

What’s more, funds with balances of $200,000 or more provide equal value to retail or industry funds at all levels of administration.

Rice Warner also found that comparisons for SMSFs in the accumulation and pension phase were similar, as were those with a single member or two members. It also found that SMSFs with multiple members and a combination of accumulation and pension accounts are competitive with balances as low as $100,000 and may even be the cheapest from credits of $150,000 provided trustees do some or all the administration.

As expected, SMSFs with balances below $100,000 were generally more expensive than retail or industry funds. In 2019, 8.5% of SMSFs held less than $100,000 in assets, well below the figure of 11% in 2013 when Rice Warner last carried out its analysis. SMSFs of this size would only be appropriate if they expected to grow to a competitive size within a reasonable time. Indeed, there is evidence that most SMSFs with low balances either grow relatively quickly or are late in the drawdown phase and preparing to close.

Of the 1,811 funds with balances of $50,000 or less at the beginning of 2017, 40% had grown above this range by the end of 2019, 27% were closed during the period, and 33% remained within the field.

The high cost of direct property

One of the benefits and attractions of SMSFs is that they are the only type of super fund that allows members to invest in direct property. But this comes at a high cost.

Rice Warner also analysed total fees incurred by SMSFs with and without direct property investments. While median prices for SMSFs without natural property are competitive for balances of $200,000 or more, median and high fees for those with the direct property are higher than the most increased retail and industry funds of all balance sizes.

Taking the example of SMSFs with a balance of $500,000 in 2019, median fees for funds without direct property were $3,207 compared with $9,969 for funds with the natural property. Funds with the same balance but high costs had total expenses of $15,908 without direct property and $29,799 with the immediate property.

This pattern of total fees was repeated for funds of all balances. The report attributed this to the higher investment costs of servicing direct property than other investments and higher administration costs for accounting and related services.

This highlights the importance of doing your cost-benefit analysis when considering an SMSF. For some SMSFs, investing in direct property may not stack up financially against other types of investments. For others, especially those with business property, the benefits of holding property in super may be worth the cost, especially when compared with the cost of owning property outside super.  

The bottom line

SMSF costs are proportionally higher for funds with lower balances and less competitive with other super funds types. These costs include establishment, ongoing and wind-up expenses, and non-financial costs such as the time you spend operating your fund. So, if you are considering setting up an SMSF, the benefits need to outweigh the costs, or you may be better off with an industry or retail fund.

The information contained in this article is general. It’s best to seek independent professional advice to determine whether setting up an SMSF is appropriate for your individual financial needs and circumstances.

What type of people has SMSFs?

Self-managed super funds (SMSFs) are now firmly embedded in Australia’s superannuation system, so what type of people are attracted to running their funds?

SMSFs are privately run super funds that can currently have between one and four members.  

According to the latest Australian Taxation Office (ATO) statistics, more than 1.1 million Australians are members of SMSFs. The number continues to grow steadily, although the growth rate has been falling for several years as the sector matures. Collectively they hold 26% of the $2.9 trillion in super assets.

Increasingly, those SMSF members are female, especially in younger age groups. At last count, 47% of SMSF members were female with an average balance of $624,000. While lower than the average balance of $754,000 for men, women are growing their savings faster, up 28% over five years compared with 21% for men.

Almost 70% of SMSFs have two members, typically an older married couple; 23% have one member while only 3.5% have three members, and a similar proportion has four members. And these percentages have been consistent for many years. Plans to increase the maximum number of members from four to six have been delayed. The Morrison Government has indicated it remains committed to the move, but the current make-up of funds would mean there may not be much demand for change.  

Age and gender distribution

As indicated in the table below, SMSF members’ age ranges and genders in June 2019 were pretty evenly spread between the ages of 35 and 84.

The median age for all SMSF members was 60, which has crept up a little as the baby boomers move into retirement. There has been a slight decline in the percentage of members in all age brackets below age 70, and a slight increase in those aged 70 and over in the latest statistics.

The gender of members is also relatively evenly split, at 53% male and 47% female.

Age and gender profile of SMSF members: All members source: Australian Taxation Office

The ATO statistics also reveal that both men and women aged between 35 and 44 have been the most active in terms of recently establishing new SMSFs. The median age of new members was 46 in 2017/18.

In an encouraging sign, women are starting their SMSFs faster than men in all age groups between 25 and 49. The following table reveals the age and gender of members of SMSFs established in the March quarter of 2020.

Income ranges

The average taxable income for all SMSF members was $117,000 as of June 2018, while the median income was $64,000. This compares with members of other super funds who had an average taxable income of $62,000 and a median taxable income of $48,000.

The following table provides information on the income ranges of both male and female SMSF members. Significantly, the above table also highlights that the proportion of female SMSF members earning a taxable income of less than $80,000 is higher than the proportion of male SMSF members. It also reveals that the proportion of male SMSF members earning taxable incomes above $80,000 is higher.

However, in line with popular perceptions, SMSF members generally have higher taxable incomes than members of other types of super funds, as the table below (for the 2018 financial year) shows.

Superannuation balances

According to the latest ATO statistics, all individual SMSF members’ average account balance is $678,621, although members skew this figure with massive proportions. The median compensation (half of all members have a ratio higher and half have a balance lower) is a more modest $408,237. These figures are up 25% and 28% respectively over five years.

Women are beginning to close the gap, with the average balance for women up 28% in the five years to June 2018 to $624,000. The average ratio for men increased 21% to $754,000 over the same period.

The table below shows the peak of the balance for both men and women aged 75–84. This could indicate that either people are not spending as much as they could afford in retirement or they plan to leave a significant inheritance to their beneficiaries.ATO figures further reveal that the average assets per member in the establishment year of an SMSF was $214,000 in 2018, while the median was $125,000.

Although it’s generally advised that the cost of setting up and running an SMSF may not be in the best interests of members with a balance of less than $200,000, there is anecdotal evidence that some people establish funds with less in the expectation of increasing their ratio reasonably quickly. In any event, the message does seem to be getting through. The proportion of SMSF members with balances of $200,000 or less fell from 46% to 40% in the five years to 2018.


SMSFs are proportionally more popular in Victoria than any other Australian state or territory. Although Victoria has 25% of Australia’s population, it has 30% of all SMSF members. NSW has 33% of all members.

On the other hand, Queensland, Western Australia, Tasmania, and the Northern Territory are under-represented in SMSF members compared to their respective shares of Australia’s total population.

The differences between SMSF members in the accumulation and retirement phases

The most recent ATO figures reveal that 39% of all SMSF members are currently in the retirement phase (previously known as the pension phase). The picture is slightly more complex at the SMSF fund level, given that the average fund has two members, typically a married couple who may be in different member phases. The introduction of the $1.6 million transfer balance cap in July 2017 means some retirees may have money in both accumulation and pension accounts within their SMSF.

According to Class Super (an SMSF administration software company), as of March 2020, 48% of funds have at least one member in the retirement phase, but 31% have a mix of accumulation and retirement assets. Accumulation funds are defined as those which only have accumulation members. Retirement SMSFs hold pension accounts purely with no holdings in accumulation.

The class has broken down the numbers for each member phase in the table below. According to Class Head of Analytics, Adam Solomon: “While mixed phase SMSFs are not the largest SMSF member segment, they do hold significantly more in net assets per member than those in either accumulation or retirement phase.”

Following the rule change in July 2017 limiting the amount that can be transferred into a pension account, funds with wealthier pension members with more than the transfer balance cap of $1.6 million will typically be in a mixed-phase.

“Mixed SMSFs include funds where all members are in retirement phase, but some fund assets are held outside of pensions, as well as funds with a mix of accumulation members and pension members. Mixed funds may only have one member if that member has both accumulation and pension balances,” says Solomon.

Different types of SMSF members

The most common trait for those deciding to start or join an SMSF is having the motivation to choose and manage their super investments. In 2017, CBA and the SMSF Association produced a report that broke down SMSF members into the following four investor profiles:

  1. The Controller: This is the most common type of SMSF member. They want to have a high degree of control over the management of their fund and investment decision-making. They may seek professional advice, but they are also confident in managing their SMSF, especially about investment decisions.
  2. The Self-directed Investor: This type is less likely to seek professional advice in managing their fund or making investment decisions than a controller. They have a high level of confidence in their abilities.
  3. The Coach Seeker: Coach seekers take a moderately active role in managing their SMSF and making investment decisions. They seek professional guidance to help them but don’t outsource completely.
  4. The Outsourcer: This type of SMSF member prefers to almost totally outsource the day-to-day administration of their fund and investment decision-making to professionals that they hire.

The bottom line

The number of SMSFs in Australia has continued to rise in recent years, along with average individual and overall fund balances. Another trend is the growing number of women with SMSFs and a tightening of the gap between male and female account balances.

SMSF members are generally attracted by the freedom to choose and manage their super investments. But there can be significant costs and responsibilities involved with setting up and running an SMSF, so the benefits must outweigh the costs.

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