Caution urged after rise in young workers managing their own super

Younger people with an eye to their retirements are being urged to take care after a rise in the number of under-50s running their own super fund, attracted by the promise of more control and flexibility over their retirement savings.

Figures from the Australian Taxation Office (ATO) show 25- to 49-year-olds accounted for almost 60 per cent of new establishments of self-managed superannuation funds (SMSFs) in the first quarter of this year.

Self-managed superannuation funds can seem like a good idea, but it is a step that should not be taken lightly.Credit: Karl Hilzinger

Tim Steele, the chief executive officer of SMSF administration software company Class, says the growth reflects the increasing level of education among younger people around investing. Class’s 2023 Annual Benchmark Report cites ATO figures showing the median age of those establishing funds has reduced from 54 in 2010 to 46 in 2020.

“The younger generation is realising the many benefits SMSFs offer, including flexibility, investment choice and control, as well as the opportunity to become more engaged in their retirement outcomes,” Steele says.

However, Andrew Heaven, an AMP financial planner with WealthPartners Financial Solutions, cautions that running your own super fund is onerous, and it is not something you dive into without your eyes wide open.

He says there are those for whom having their own fund can make a lot of sense, such as small business owners, entrepreneurs and professionals who work for themselves.

That is particularly for those who own real estate from which they conduct their businesses, where the property can be held in the fund. Others may want residential property in their fund, though they cannot live in or use the property themselves.

Heaven says those thinking of starting their own fund have to be prepared to put in the work of running the fund, keep up-to-date with regulatory changes and take an active interest in how the money is invested.

The novelty of running a fund can wear off because of the responsibility involved, he says, and large modern super funds can make many more types of investments these days than was the case years ago.

Large super funds, including the investment “platforms” that tend to be used by financial planners for their clients, offer direct shares, such as Australian shares as well as Australian listed exchange-traded funds.

Further complicating the process is the question of how much money is needed to start a DIY fund to cover the establishment and ongoing costs, given that the best of the large super funds have costs that are less than 1 per cent of the balance of the super account.

You have to be confident the costs of the fund are worth the flexibility, Heaven says. “It’s really not financially viable to run a SMSF, given the costs, unless you have at least half-a-million dollars in the fund,” he says.

Financial adviser and Belay Advisory co-founder Richard Felice says SMSFs can be good for those who want to put some of their retirement savings towards hard-to-access investments.

Felice’s clients tend to be well-off, and they may want to invest in “private” markets, like private equity funds, for example. Even then, running your own fund “comes with responsibilities, and you have to weigh up if the administration and the time that it takes [to run the fund], and the costs,” Felice says.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

For expert tips on how to save, invest and make the most of your money, delivered to your inbox every Sunday, sign up for our Real Money newsletter here.