More Australians are taking their retirement into their own hands because they don’t want their future quality of life in the hands of a superannuation fund manager they have never met, or a government pension that may not exist by the time they retire.

One way to take full ownership of your future is to establish a Self-Managed Super Fund (SMSF). The most recent figures from the ATO reveal there are 603,000 SMSFs in Australia, with 1.123 million members and a collective asset holding of $868.7 billion of the nation’s $3.3 trillion in super assets under management.

Reasons to set up a SMSF

Control – You can tailor investment choices to your favoured asset classes and align your investments with your tolerance for risk, financial goals and ethical preferences.

Flexibility – Your SMSF can open doors to a wide range of investment opportunities, including shares, property, term deposits, bonds and managed funds.

Cost – Your SMSF can have multiple members (between two and four), which means more diversity in strategy and the ability to combine your assets. This is especially good because the more value a SMSF accumulates, the more cost effective it is to run. You pay an annual audit, tax return and capped ATO fees, and don’t have to pay a percentage of your balance to a fund manager.

Tax – SMSFs benefit from superannuation tax rates, as in ‘concessional’. Investment income tax is capped at 15%, unlike the 30% plus outside of super. And when you hit the pension phase, there’s no tax, which can mean big savings on Capital Gains Tax (CGT).

Direct property – A popular feature is the ability to invest directly into residential or commercial properties. This option can turbocharge retirement funds with capital growth and rental income.

How to set one up

The world of SMSFs have become less complicated over the years, but there are still very strict compliance rules to follow. It’s therefore essential to engage the right professionals when establishing your fund.

An accountant can assist in the establishment and provide ongoing advice on investment decisions, tax implications, audit requirements and other matters of compliance, plus guide you in drafting the fund’s trust deed and obtaining the necessary Australian Business Number and Tax File Number.

A financial advisor may be able to help with a comprehensive investment strategy that aligns with your financial goals and risk tolerance.

It’s also possible to set one up yourself through an online platform, but it would be best to be extremely diligent when considering such an option.

Whatever you choose, there are five overarching steps in establishing a fund.

1. You first must establish a trust, featuring trustees, assets, identifiable beneficiaries and intention to create a trust.
2. Obtain a trust deed, which should be prepared by a legal professional and sets out the rules and conditions under which your SMSF will operate.
3. Sign a declaration, which must be approved by the ATO, stating that you understand these rules, your duties and your obligations.
4. Lodge an election to be regulated with the ATO within 60 days of establishment.
5. Open a cash account so your fund can receive contributions, rollovers and earnings from investments, plus pay levies, fees and member benefits.

Managing your SMSF

The professional you engage when establishing your fund should also offer plenty of information regarding its day to day management.

To ensure a successful and compliant SMSF journey, you will need to focus on a number of key areas:

– Investment strategy: You need a clear investment strategy outlining your risk profile, investment preferences and long term goals.

– Diversification: A range of investment assets will help mitigate risk and enhance long term returns.

– Admin: Proper record keeping of all transactions and decisions made within the fund will simplify the compulsory audit process and keep you on top of regulatory requirements.

– Compliance: Engage an approved SMSF auditor to conduct an annual audit of the fund’s financial statements and make sure you comply with superannuation laws, plus ATO regulations and reporting obligations.

– Insurance: Get the right cover for members to protect against unforeseen events such as disability or death.

Some pain points

SMSFs require a significant commitment on your behalf, in order to be set up, administered and kept compliant. Before you dive in, consider the following:

Work: Even with professional help, SMSF trustees spend an average eight hours a month on fund administration.

Costs: SMSF trustees spend more than $6000 a year on ongoing expenses such as legal and financial advice, auditor’s fees, management and admin expenses and levees.

Risks: You are personally liable for all the fund’s decisions and management, even if another trustee makes a mistake or your circumstances change.

Rules: You will encounter restrictions on investments that you would not have to worry about outside of super. For example, if your SMSF must borrow to invest in property, you can only use rental income plus 11% superannuation guarantee contribution from your employer; you will not be able to access equity or rental income until you reach retirement age; and your personal borrowing power outside of super will be affected by the liabilities of your SMSF.