Pros and cons of self-managed super funds

Key takeaways

  • Having an SMSF provides more choice and freedom to access investment options that would otherwise be unavailable through a super fund

  • An SMSF fund can have up to six members which offers greater scale to access investment opportunities that may not be available to you as an individual

  • Running an SMSF successfully is complex, requiring investment, legal, super and admin skills—or the ability to get help from people who have those skills.

Having control over how your retirement savings are invested is one of the many benefits of self-managed super funds (SMSF).

On the flip side, the responsibilities and management skills required to run an SMSF are significant. This is because you’re accountable for your SMSF’s regulatory compliance—not your accountant, financial adviser or solicitor.

In this article, we explore what might make an SMSF more attractive than investing through a public super fund, and some of the downsides to consider.

How SMSFs differ to traditional super funds

An SMSF is a private super fund you manage yourself, giving you more control over how your retirement savings are invested.

SMSFs members must be trustees (or directors of the SMSF corporate trustee) and are beneficiaries of their SMSF. This means SMSF members are responsible for managing the fund’s investments and compliance with super and tax laws. This hands-on approach sets SMSFs apart from public super funds, which are managed by financial institutions.

Benefits of SMSFs

Access to more investment options

Having an SMSF provides more choice and freedom to access investment options that would otherwise be unavailable through a public super fund. This includes assets like real property, art and collectibles—such as stamps and coins—as well as physical gold.

Unlike investing with an industry, bank or retail super fund, your SMSF can borrow to invest in property, using a Limited Recourse Borrowing Arrangement (LRBAs).

This strategy is a good option to help expand your investment portfolio. However, there are restrictions and compliance requirements. The Australian Taxation Office (ATO) has warned investors of the dangers of over-investing (and over borrowing) into property within SMSFs.


If you’re a member of an SMSF, you have greater control over how your super’s invested while working, and how it’s paid when you retire.

This means you can invest in many of the products available to public super funds, as well as some products that aren’t. For example, SMSFs can invest directly in real estate, rather than being restricted to property trusts as many public funds are.

Tax benefits

You’re entitled to the same reduced tax rates that are available through super so your investment return is taxed at a maximum of 15% (provided that your SMSF is a complying fund) rather than your personal income tax rate which could be as high as 45%. In addition, any payments received after the age of 60 are tax free.

These tax benefits are common to all super funds, not just SMSFs. However, SMSFs have more flexibility to use tax strategies around capital gains, taxable income or franking credits.

More scale to access opportunities

Generally speaking, an SMSF fund can have up to six members. Bringing six investors’ money together, offers greater scale to access investment opportunities that may not be available to you as an individual investor.

Having scale may also help to keep fees down. This is because you can pool your assets and share expenses, leading to potential cost savings, which means you may have more funds available for investment growth.

Estate planning

One often overlooked advantage of SMSFs is they can provide greater flexibility or control if a member was to pass away.

An SMSF trust deed may also provide how and to whom death benefits will be distributed as long as these align with super law. The deed may also allow for cascading death benefit nominations or the exclusion of certain beneficiaries. Benefits could also be distributed to beneficiaries in a tax effective way.

Considerations to be aware of


Managing an SMSF is not easy. As the trustee, you need to ensure the fund complies with all relevant regulations otherwise you could face severe consequences for getting it wrong.

If the fund is deemed to have breached its compliance responsibilities, penalties can include fines and civil or criminal proceedings. Depending on the offense, tax penalties could be increased, including fund returns being taxed at the top marginal tax rate as opposed to the concessional super rate of 15%.


What investors often overlook is the financial and investment expertise required to run, or be involved in running, an SMSF.

As a trustee, you’ll be responsible for creating and implementing your own investment strategy—one that will need to deliver enough returns to adequately fund your retirement.

This means you need to:

  • understand how investment markets work, including share markets

  • record your investments and transactions

  • ensure your fund is adequately diversified to help manage risk.

You’ll also need to remain up to date on any changes to legislation that affect SMSFs as these may have compliance requirements.

An understanding of how to manage legal documents, such as a trust deed, is also beneficial. However, a legal professional could help you with this.


The administration and management of an SMSF is time intensive so if time is something you’re short of, an SMSF may not be a good option. On the other hand, many SMSF investors enjoy the sense of involvement and purpose that running their own fund brings.

Higher insurance costs

Public super funds can generally provide cheaper insurance to their members than SMSFs. This is because they have large memberships and can negotiate discounted bulk premiums with insurance providers.

Outsourcing to professionals

If you find you don’t have the time or investment knowledge to manage your SMSF, you can outsource this to investment managers, financial advisers or other experts. This will come at an additional cost though.

Minimum amount required

There is a lot of controversy around what should be a reasonable amount to set up an SMSF.

There’s no minimum amount required to set up an SMSF but depending on the fund’s complexity and structure, set up costs, administration, reporting and legal fees, it can become expensive. It’s generally more cost-effective if your SMSF has a higher balance.

Frequently Asked Questions

Can I borrow money through my SMSF to purchase an investment property?

Yes. SMSFs can borrow money to invest in property through a Limited Recourse Borrowing Arrangement. However, there are specific rules and conditions that must be met to do this.

What are the penalties for non-compliance with SMSFs regulations?

SMSF members can be subject to heavy penalties for not complying with regulations, including:

  • Their fund losing its concessional tax treatment

  • The trustee being disqualified from their roles so they can no longer be members of the SMSF, nor can they start a new fund

  • The freezing of SMSF assets

  • Fines or imprisonment, depending on the seriousness of the legislative breach.

Talk to us to find out more.

This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at September 2023 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.

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