The Australian Securities and Investments Commission’s one-eyed focus on self-managed superannuation funds isn’t helping consumers make an educated decision on the best vehicle to invest their retirement savings.
The regulator’s recent Consultation Paper 216 – Advice on SMSFs: Specific disclosure requirements and SMSF costs, implies that the cost of setting up, running and winding up an SMSF can be complex and expensive. However, it does not acknowledge that matters can be more complicated for members of large APRA-regulated superannuation funds.
Setting up a self-managed superannuation fund is fairly straight forward.
It can cost anywhere from a couple of hundred dollars to around $1500 to set up an SMSF, depending on how the fund is structured and who structured it.
The ongoing cost of running an SMSF will depend on factors such as how much work trustees are prepared to do themselves, how much they outsource and the complexity of their investments.
A fund with simple investments and few external support requirements may cost between $1000 and $1500 to run, including accounting, tax, audit and statutory lodgement fees.
For a fund with a balance of only $100,000 this is only 1 to 1.5 per cent of assets.
More commonly, funds have several investments and need some support, which may cost between $2000 and $4000 per annum.
It’s rare for an SMSF to pay more than $5000 per annum, unless the trustees’ affairs are really complex and a lot of support is required. This tends to correspond to people with large, multi-million dollar balances.
When the time comes to wind a fund up, and eventually every SMSF will need to be wound up, the process is also fairly straight forward. All underlying investments are sold, money is withdrawn or moved to another fund and the administrator or accountant lodges a final return.
For members of large superannuation funds, things can get complicated.
The process and cost of entering a large super fund is detailed in the fund’s Product Disclosure Statement but these documents are notoriously impossible to understand.
There isn’t a simple one-page summary that outlines how much the member will actually pay each year or how their decisions will contribute to those costs. Most of the fees are described as a percentage of assets, which basically means being a member of a large fund is cost effective for those with small balances and expensive for those with large balances.
It’s not uncommon for people with a larger balances (commonly defined as balances over $200,000), to get sick of cross-subsidising everyone else and look for an alternative, user-pays model, such as an SMSF.
Next week, this column will look at the need to consider and develop an exit strategy for an SMSF.
