Why are self-managed super funds (SMSFs) better than normal funds?
The answer is they're not – at least not for everyone. But one of the benefits people often assume about SMSFs is that they are cheaper to run than retail and industry funds.
Let's take a look at the evidence to see whether or not this is true. If you'd like more information on SMSFs, please get in touch with Geelong accountants WMC Accounting.
Are my super fees too high?
A recent Rainmaker Consulting report revealed the superannuation industry generated approximately $31 billion in fees in 2016. The report split super funds into three categories:
- Retail funds: $15.5 billion in fees;
- Not-for profit (NFP) funds: $13 billion in fees; and
- SMSFs: $2.3 billion in fees.
NFP funds typically include industry and public sector funds, as well as some corporate funds.
Roy Morgan (@roymorganonline) May 23, 2017
Based on these figures, SMSFs are cheaper to run than retail or industry funds, right? Not quite. This data doesn't account for a variety of factors, including the number of people in a fund and its size.
Fortunately, the report also breaks down the average fee for individual members of each fund:
- Personal retail: 2.05 per cent;
- Workplace retail: 1.59 per cent;
- NFP: 1.1 per cent; and
- SMSF: 0.8 per cent.
The Rainmaker Consulting results therefore indicate that SMSFs are more affordable than retail and industry funds, but there are other factors involved.
Are SMSFs better than normal funds on price?
The 0.8 per cent figure helps, but it's not the whole story.
First, the data conflicts slightly with Australian Taxation Office (ATO) figures.
ato.gov.au (@ato_gov_au) January 16, 2017
The ATO revealed that the fees for SMSFs on an average-sized fund are 1.01 per cent, rising to 1.45 per cent for funds worth between $500,000 and $1 million.
Second, the size of an SMSF is crucial to whether they are cost competitive with other funds.
Research from Rice Warner found that SMSFs must contain at least $500,000 worth of assets to be cheaper to run than retail or industry funds if members want help with administration.
Last, fee estimates rarely take into account opportunity costs. A Deakin University study revealed that when the value of trustees' time is factored in, the cost of running an SMSF is between 1.45 and 1.92 per cent.
Do you need SMSF advice?
Ultimately, whether an SMSF is cheaper to run than retail or industry funds will depend on the value of your fund, how much assistance you require with administration and the amount of time you'll spend running the fund yourself.
Contact an accounting firm with SMSF advisory services, such as WMC Accounting, to help you weigh up competing costs and choose the right super option for you.
WMC Holdings Pty Ltd t/as WMC Accounting is a Corporate Authorised Representative No. 124 5401 of SMSF Advisers Network Pty Ltd ABN 64 155 907 671 AFSL No. 430062 www.smsfadvisersnetwork.com.au.
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