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What is a self-managed super fund?

  • August 21 2020
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What is a self-managed super fund?

By Zarah Mae Torrazo
August 21 2020

What is a self-managed super fund? Let’s get down to the basics and learn what an SMSF is and how it works.

self-managed super fund

What is a self-managed super fund?

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  • August 21 2020
  • Share

What is a self-managed super fund? Let’s get down to the basics and learn what an SMSF is and how it works.

self-managed super fund

Data from the Australian Taxation Office (ATO) shows that the number of self-managed superannuation funds (SMSF) has increased in the last five years. Currently, the figure stands at 600,000. While more than 1.1 million Aussies have hopped on the SMSF train, other people are left wondering if they should have one. For some, they don’t even have a clear idea of how it works.

If you’re one of the people who are clueless about SMSF, don’t feel left out! Whether this article serves as a refresher course or a starter guide for you, hopefully, it helps you decide whether an SMSF is the right option when building your retirement nest egg. 

What is a self-managed super fund?

As the name implies, an SMSF (also known as DIY super) is a private super fund that you manage yourself. SMSFs are different from a standard retail or industry fund that is managed on your behalf.


The main purpose of an SMSF is to provide a retirement income for its members. It can also serve as a death benefit. An SMSF has its own Tax File Number (TFN) and Australian Business Number (ABN). It is also required to have its own bank account.

The members of the fund or trustees simply put their superannuation contributions into the SMSF bank account, like you would with a retail super fund. As an SMSF member, you choose the investments and the insurance, and you oversee all the aspects of the fund yourself.

How is an SMSF structured?

According to ATO guidelines, an SMSF can have up to four members. As a member, you are a trustee of the fund. Trustees are wholly responsible for the financial, legal and managerial duties required to run the fund and therefore are fully liable for any breaches of regulation.  

You can choose from two structures for your fund:

  • Individual trustee – each member is a trustee, with a minimum of two trustees required. 
  • Corporate trustee – a company serves as the trustee and each member is a director. This structure allows simpler recording and registering of assets, providing administration efficiencies and flexibility in membership.  

As it is a trust, an SMSF requires a trustee. In the individual trustee structure, members of an SMSF are also its trustees. If a fund chooses to have a corporate trustee, each SMSF member must be a board member or director of that company. It also needs to be registered with the Australian Securities and Investments Commission (ASIC) and each director of that company must also be a member of its corresponding SMSF.

Who can be a member of an SMSF?

To be eligible to become a member, a person must formally consent to becoming a trustee and have a full understanding of their responsibilities by signing a trustee declaration. 

If you are under 18, you can still join an SMSF. But you need to be represented by a trustee who agrees to act on their behalf. Typically this is a parent or a guardian of the minor. 

You are not qualified to be an SMSF trustee/member if you are any of the following: 

  • A registered bankrupt
  • Have previously been disqualified as an SMSF trustee by a court, or by the ATO or ASIC
  • Have an employer-employee relationship with another fund member (unless they are a relative)

Read here to learn the SMSF membership qualification requirements to determine the eligibility of potential trustees.

What is an SMSF investment strategy?

The superannuation law requires SMSFs to have a documented investment strategy. An SMSF investment strategy is a plan for making, holding and realising assets that are in line with your investment objectives and retirement goals. It should entail why and how you’ve chosen to invest in order to meet these goals. 

All your actions as a trust must follow the investment strategy. As a member/trustee of the fund, you are responsible for ensuring that the investment decisions are properly implemented.

Members/trustees typically discuss their collective investment objectives with a financial adviser and formulate a strategy together. Here are several factors to consider when developing an SMSF investment strategy: 

  • The characteristics of the fund members (e.g. age, current financial circumstances, risk profile) 
  • Diversification of the fund’s investments to lower the risk
  • How liquid the fund’s assets are
  • The current insurance needs of individual members to ensure appropriate coverage is in place

Why choose an SMSF over a public fund?

 When asked why they chose to be part of an SMSF, most people cite the increased control given to them by a private super fund. This is because SMSFs allow members to control how their retirement savings are invested. 

Another reason cited for choosing an SMSF is the poor performance of existing public funds. Some SMSF members said advice from their accountant or financial planner has prompted their decision. 

What are the benefits of an SMSF?

There are a number of benefits of an SMSF. As mentioned, being a trustee means you can choose how to invest and manage your super savings. Here are other advantages of setting up an SMSF and managing your own super: 

Greater investment flexibility
SMSF members have greater flexibility on when they buy and sell their investments. For example, if market conditions change, you can quickly respond by adjusting your investment portfolio. 

Ability to pool your super
Another advantage offered by SMSFs is the ability to pool your resources with other members. This gives you access to investment opportunities that may not be available if you are not an SMSF member/trustee. 

Flexibility with your estate planning
SMSFs also offer great flexibility with your estate planning needs. Unlike the majority of public funds (which tend to require binding benefit nominations to be updated every three years), SMSF members can make binding death benefit nomination lapse. This is, of course, if the fund’s trust deed allows it. Additionally, members can specify how death benefits are to be paid. 

Better tax management
In an SMSF, you have greater control of your assets and investment decisions, which allows you to better manage the tax position of the SMSF.

Currently, the tax rate on earnings within a super fund is 15 per cent. But when the income is produced by assets fully supporting an income source such as a pension, there is no tax payable on that income within the fund. This difference in tax rate means that by having a hands-on approach to the disposal of assets, you can reduce or potentially entirely avoid a capital gains tax liability.  

Adding value with property
Investing in real estate can be another way to grow your super. Owning real estate through your SMSF typically involves the fund buying a residential property or a commercial property, which is leased or rented to tenants. But remember that fund members or relatives cannot rent a residential property from an SMSF due to the in-house assets test. 

What are the risks of an SMSF?

While having control over your own super can sound appealing, you must beware of the risks that come with joining an SMSF. 

You are personally liable for all the fund’s decisions even if you get help from a professional or if another member made the decision. All members of an SMSF are responsible for the fund’s decisions and for complying with the law. 

Strict regulations
There are strict laws and regulations that govern SMSFs. While SMSFs benefit from strategic investments with tax advantages, the ATO also has strict penalties for those who don’t comply with the Superannuation Industry (Supervision) Act 1993 (SISA) and tax laws – a minimum of 45 per cent tax payable plus additional fines and taxes.

Laborious and time consuming 
SMSFs have strict lodgement and administrative obligations, which require ongoing attention. 


Self-managed super funds are a great way to save for your retirement. It offers flexibility in terms of controlling your investments. It also helps you have a deeper understanding where your money is being used, giving you more confidence in your investment and lifestyle decisions. 

Just make sure that you understand the risks to consider before setting up or joining an SMSF. Only set up your own super fund if you’re 100 per cent committed and you understand what’s involved.

Explore nestegg to learn all about SMSFs and how it can help you upon your retirement. 

What is a self-managed super fund?
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