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There has been much debate around the minimum balance required to make a self-managed super fund (SMSF) cost effective, with the consensus, even among regulators, now being somewhere between $200,000 and $500,000.
According to the Australian Taxation Office’s own case studies (last updated two years ago), there may even be instances where a balance of $172,000 is suitable for a couple, with these provisos:
- They have an interest, willingness and available time to play an active part in the management of their finances
- Understand that specialist knowledge and expertise is required to manage a diversified investment portfolio, and
- Have a strong surplus cash flow position.
On the flip side, another ATO case study suggests an SMSF may not be suitable for couple with a balance $512,000 if it would be more time-consuming than their existing superannuation arrangements and the couple’s primary retirement goal was to have a simpler life in retirement.
In other words, the decision to run your own super fund is about more than your starting balance and costs. But if you’re thinking of starting up an SMSF, you do need to have a fairly good idea of thecosts involved so you can make an informed decision.
Setup fee
Setup fees are the costs incurred for establishing an SMSF and will include costs for things such as the trust deed, ATO application forms, investment strategy and general trust advice. If an SMSF decides to use a corporate trustee structure instead of an individual trustee, there will be some additional establishment costs for setting up the company structure.
The good news is that SMSF setup and admin fees haven’t risen at the same rate as inflation over the past three to four years, according to Sonas Wealth managing director, SMSF specialist advisor and financial planner, Liam Shorte.
“Fees have gone up a little bit, but the competition keeps the pressure on,” he said.
Range of potential set up costs for an SMSF
| SMSF Deed documentation package | $400–700 |
| Setup of corporate Trustee | |
| ASIC fee (as at 1 July 2024) | $597 |
| Company documentation package | $400–600 |
| Total | $1,400–1,900 |
Ongoing administration fees
There are fees that all SMSFs need to pay to cover their annual compliance requirements. These include the ATO supervisory levy, financial statement and tax return preparation, and the cost of getting the fund audited by a registered auditor.
The supervisory levy is $259 no matter the size or complexity of the fund and there is an annual Australian Securities and Investments Commission (ASIC) review fee of $65. Audit fees have levelled out at around $550 but the fee for your financial statement and tax return (if you choose to outsource it) will vary depending on the complexity of the fund. Depending on the assets in the fund and whether it has members in both pension and accumulation phase, you may also require an actuarial certificate.
If you choose to outsource the ongoing compliance of the fund, this can cost from around $1,800 to $4,500 depending on the provider and the complexity of the fund.
If you have sufficient time and expertise, you can also do a considerable amount of the tax return yourself.
If you do decide to do a lot of the admin yourself, you also need to consider the opportunity cost of your time. ASIC has said that it takes 100 hours per year to run a fund which works out at just under two hours per week.
If your hourly rate works out at around $80 an hour, then that’s $8,000 of your time and potentially a lot more than what annual administration fees might cost. Of course, if you like investing and/or have expertise in finance you may have no qualms giving up that much of your time, but it is something that needs to be considered.
Investment fees
Investment management fees can be difficult to estimate as they will vary widely depending on the type and value of assets in the fund.
The investment expense experience of those with direct property is very different to those without; as are the costs of trustees with a portfolio of diversified shares compared to those who prefer managed funds.
The ATO’s most recent SMSF annual overview (for 2021–22) says that median investment fees for funds between $200,000 and $500,000 were $5,674, or a management expense ratio (MER) of 1.14% on a balance of $500,000; and $6,131 for a fund with a balance of between $500,000 and $1 million, which works out at an MER of 0.61% on a balance of $1 million.
Pension accounts versus accumulation accounts
Research conducted a few years ago by Rice Warner found that while funds with both pension and accumulation accounts were generally more expensive to run, the annual fees incurred by SMSFs that had just pension accounts were usually cheaper than those funds with both and those with just accumulation accounts. Rice Warner put this down, partly, to pension funds having simpler investment arrangements.
The bottom line
Setup fees for an SMSF are roughly the same irrespective of your starting balance, and range between $1,400 to $2,000. But ongoing fees will depend greatly on what kind of fund you have and what you are investing in. If it is a very simple fund, you may be able to do a lot of the admin yourself, but don’t forget to calculate the opportunity cost of your time, especially if you are working in high paying roles and are not retired yet.
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