Starting with the goal, not the structure

An SMSF is a means to an end. Retirement objectives — when to retire, the income being aimed for, comfortable Investment risk and desired involvement — shape whether the control an SMSF offers is useful in a given case.

The ATO states that an SMSF exists for the sole purpose of providing retirement benefits. Any decision to set one up is measured against that purpose rather than against a wish to access a particular investment for its own sake.

Time and skills required

Running a fund is an ongoing commitment. As trustee, responsibilities include setting an investment strategy, keeping records, arranging an annual audit and lodging returns, and staying current as the law changes. The ATO advises being certain of having the knowledge, time and skills before starting.

Administration can be outsourced, but the legal responsibility cannot be. In a difficult year — markets falling, a member's circumstances changing, an unfamiliar tax question arising — trustees must respond, document their decisions and keep the fund compliant throughout.

Cost against balance

Because several SMSF costs are fixed, the fund's balance affects whether it is cost-effective. A fund pays for an audit, the 259 AUD supervisory levy and usually administration every year regardless of size. On a small balance, fixed costs represent a large percentage; on a larger balance, they shrink in relative terms.

Running the numbers over several years, rather than a single year, gives a fuller picture, since fixed costs recur annually and a balance that makes the fund marginal today may become more cost-effective as it grows, or may not.

What an SMSF can and cannot offer

An SMSF can offer investment choice, the ability to hold direct property or other Assets within the rules, and control over strategy and timing. The same preservation rules, contribution caps and sole purpose test apply as with any super fund, and the compliance burden rests with the trustees.

Fund performance depends on the decisions the trustees make and the markets they invest in, not on the structure itself.

A worked comparison

Consider a hypothetical example. Dan, aged 52, has 220,000 AUD in super, works long hours and has little interest in investing, and would likely outsource everything and rarely review the fund. Mai, aged 58, has 700,000 AUD, enjoys managing investments and has time to run a fund carefully. The structure is unchanged between the two; the fit differs because the people and circumstances differ.

Life stage and circumstances

Stage of life affects the decision alongside balance. Health, family arrangements and whether someone might live or work overseas all bear on how practical it is to run a fund, because trustees must generally keep the fund's central management and control in Australia.

A fund shared with a partner or family members involves shared decisions and shared responsibility, so agreeing in advance how decisions will be made, and what happens if a member dies, separates or wants to leave, is relevant to assessing fit.