How much do you need to set up a self-managed superannuation fund?
This is a common question for anyone considering setting up their own superannuation fund.
It is important to note that there is no mandated minimum amount required to establish a Self-Managed Superannuation Fund (“SMSF”). However, the Australian Securities and Investment Commission (“ASIC”) has issued guidelines to financial advisers on this matter which includes the following points:
- It is important to consider if a client’s likely balance in an SMSF makes it “cost-effective”. If it is not cost-effective, an SMSF is unlikely to be in the client’s best interest,
- Establishing an SMSF with a balance of less than $200,000 is not likely to be cost-effective – this is based on a 2013 study by Rice Warner which indicated that the average cost of a superannuation account in Australia was just over 1%,
- There may be circumstances where starting a fund with less than $200,000 would be in the client’s best interest – for example, where the trustees are prepared to take on as much of the administrative work as possible or when members plan to roll in additional funds in the short term from say another fund or sale of a business.
All savings/investment plans have to start somewhere. Costs are not the only consideration as investment returns are likely to have a much greater effect on fund balances over time. The particular circumstances and plans of the individual/s concerned will be critical to the decision to set up an SMSF and are a far more important consideration than any arbitrary dollar balance.
Take for example the following cases:
Whilst there is no hard and fast rule for a minimum amount required to justify setting up an SMSF, it is important that the personal circumstances and plans of the individuals concerned be carefully considered and professional advice sought from experienced and licensed professionals.
For any adviser to recommend the establishment of an SMSF to a client, it should be clear that such an action is demonstrably in the client’s best interest. This applies regardless of the amount of the planned initial investment in the fund.