Costs of running an SMSF

Costs of running an SMSF

An SMSF is not necessarily cheaper to run than a public super fund. A key benefit an SMSF gives you, however, is greater control of the administration costs. Your competency level in this space - i.e. how much you can ‘do-it-yourself’ - will determine how cost effective your SMSF can be. 

 

With an SMSF, you will incur fixed costs, such as:

  • Administration costs
  • An annual tax return
  • Annual audit
  • As well as any ATO/ASIC fees
  • Any investment advice you seek

 

The real benefit of a SMSF is that they have ‘fixed costs’. This is all the more evident the larger the super balance becomes. If you calculate the total fees and costs charged against your superannuation fund as a percentage of your super fund’s balance, rather than looking at it as just a dollar amount, you’ll get a clearer picture of what you’re really paying.

With an SMSF the fees and charges remain the same regardless of the fund’s balance, whereas with a public retail or industry super fund fees and charges increase with increases to the fund’s balance.

Therefore, someone with a small super balance would, in real terms, pay higher fees if their super balance was held in a SMSF than they would if their super was held in a public fund.

By way of example, let’s consider two scenarios:

Mike Jones has $60,000 in a retail superannuation fund. His fairly standard annual fees and charges totals about 1.6 percent of his balance, or $960.

Had Mike’s $60,000 balance been in a SMSF, where fees and charges are fixed and not a percentage of his super balance, his fund may pay out a total of around $1,500; or the equivalent of 2.5 percent of his fund’s balance.

This example clearly demonstrates the cost competitiveness of a public superannuation fund, over a SMSF, where the balance held in the fund is low.

Using the example of Mike Jones again but this time assuming his superannuation balance is $150,000; fees and charges that total 1.6 percent of his balance would now cost him $2,400.

Given the costs associated with administering a SMSF are not connected with the balance in the fund, and we have established they are approximately $1,500 for the purpose of this example, Mike is now significantly better off, with his $1,500 in costs representing just 1 percent of his balance.

So a growing super balance inside a SMSF does not mean higher fees as it does in a public fund. In fact in real terms, as Mike’s super balance in a SMSF grows his fees and charges - as a percentage of the balance - reduce.

What it ultimately costs to run an SMSF will vary from one person to another. If the investment strategy of a SMSF involves borrowing to invest into property, then the corporate structure will be more complicated than if the fund was merely investing in equities with no borrowings.

It’s the investments strategy of a SMSF that determines the complexity of the structure, which in turn impacts on the cost of administration. Another variable cost will be the level of involvement you have personally versus paying for professional SMSF services and specialist’s advice.

Disclaimer: This information has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, MRD did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances.

 

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