SMSF numbers are growing but risks remain for beginners

Self-managed superannuation hold a growing pile of Australians’ wealth, but experts warn beginners to know what they sign up for.

Self-managed superannuation fund numbers have hit record highs this year as more Australians take control of their nest eggs.

The latest Australian Taxation Office data shows SMSF numbers eclipsed 600,000 in early 2022, with 1.14 million members now holding a combined $855 billion in retirement savings.

Almost 22,000 new SMSFs were established in the first nine months of last financial year, but super specialists warn beginners should understand the traps.

SMSF Loan Experts managing director Yannick Ieko says SMSFs can be great for creating wealth but are “not the right route for everyone”.

“If you can do it correctly and maintain and contribute to it regularly, you can enjoy some great tax concessions under superannuation law,” he says.

“If not, it is best to leave it to the professionals.”

Ieko says five potential pitfalls are:

• People being unwilling to take on the responsibility involved in setting up the SMSF as a trust and ensuring its ongoing compliance with super and tax legislation: “managing an SMSF is not for the faint-hearted … trustees should all be aware of the very severe consequences for getting it wrong”.

SMSF Loan Experts managing director Yannick Ieko says SMSFs involve complex activities.

• Lack of investment expertise: “you will need to understand how investment markets work, accurately record your investments and transactions and ensure fund diversity to help manage risk”.

• Not having the time to establish and manage an SMSF: some of the processes you will need to go through include a range of complex activities”.

• The cost of outsourcing work to investment managers and advisers, plus setup and administration costs totalling thousands of dollars.

• No consideration of what happens if a member becomes ill or dies, or you move job, industries or countries.

SMSF Association deputy CEO Peter Burgess says most people are motivated to start an SMSF by the idea of more control of their money and paying lower fees compared with a retail super fund.

“Make sure you have the desire, time and resources to take on the role of an SMSF trustee and to manage your SMSF,” he says.

“Do your research on the costs involved in setting up and managing your SMSF.

“As an SMSF trustee you are ultimately responsible for ensuring your fund complies with the super and tax laws, so make sure you understand what’s involved.”

Burgess says the ATO has excellent online resources that explain the roles and responsibilities of SMSF trustees, and the setup process.

“It’s a major financial decision so seek professional advice from an SMSF specialist to help you decide whether an SMSF is right for you,” he says.