A self-managed super fund (SMSF) is a private superannuation fund that individuals in Australia can manage themselves. These funds differ from industry and retail super funds, as they offer more control over investment choices and insurance options. However, managing an SMSF comes with significant responsibilities and risks.
When you opt for an SMSF, you divert your superannuation contributions away from traditional retail or industry super funds into your own fund. As a member of the SMSF, you become a trustee of the fund or can appoint a corporate trustee. In either case, you bear the responsibility for the fund’s decisions and compliance with relevant laws.
The appeal of having control over your superannuation can be enticing, but it entails substantial work and potential pitfalls. It’s crucial to consider the following risks and responsibilities before setting up an SMSF:
- Losses without Compensation: Unlike retail and industry funds, SMSFs lack access to special compensation schemes or the Australian Financial Complaints Authority (AFCA) in case of theft or fraud-related losses.
- Personal Liability: All members of an SMSF, even if they receive professional assistance or another member makes decisions, are personally liable for the fund’s actions.
- Investment Returns: The returns on your investments may not meet your expectations, and you are solely responsible for managing and optimizing the fund’s investments.
- Changing Circumstances: You must manage the fund even if your personal circumstances change, such as losing your job.
- Member Events: Events like relationship breakdowns between members, the death of a member, or a member’s illness can negatively impact your SMSF.
- Insurance Considerations: Transitioning from an industry or retail super fund to an SMSF may result in a loss of insurance coverage, which should be carefully considered.
In summary, SMSFs offer autonomy and control over your retirement savings but also come with significant responsibilities and risks. Before establishing an SMSF, it’s vital to be fully committed and comprehend the complexities involved. The Australian Taxation Office (ATO) provides further information on the key responsibilities for SMSF trustees.
It’s advisable to seek professional financial advice and thoroughly research the implications of managing your own superannuation fund to make informed decisions that align with your financial goals and risk tolerance.
The ATO has more information on the key responsibilities for SMSF trustees.
If this article has inspired you to think about your own unique situation and, more importantly, what you and your family are going through right now, please contact your advice professional.
This information does not take into account the objectives, financial situation or needs of any person. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation or needs.