Choosing the Right Super Option for Your Unique Needs
Self-managed super funds (SMSFs) are growing in popularity and more Australians are using them to build their retirement funds.
What are SMSFs, and most importantly, are they worth it? Below we compare the two most popular options, self-managed and APRA-regulated funds.
Definitions
What is a Self-Managed Super Fund?
An SMSF is a superannuation fund that meets two set criteria:
Criteria #1
First, SMSFs can only have four members or fewer. (Large industry super funds may have hundreds of thousands of members.)
Criteria #2
The decision-makers, called trustees or directors, are members of the self-managed super fund. Here’s a different way to think about it: The SMSF is like a small business, where the manager (decision-maker) is also an employee of the business.
The ATO regulates SMSFs and requires regular reporting, the same as any other taxpaying entity.
What is an APRA-Regulated Super Fund?
An Australian Prudential Regulation Authority (APRA)-regulated fund is another type of superannuation fund.
This is the most common type of super fund used by Australians; most taxpayers have their superannuation invested in APRA-regulated funds.
These include industry super funds, corporate super funds and company super funds. They are large funds with many thousands or even millions of members. Professional teams with investment experts manage the super fund like any other large organisation.
Advantages of a Self-Managed Super Fund
Control
The biggest advantage of a SMSF is the investment control it gives its members. People with an SMSF can tailor their super investment based on their own circumstances and investment interests.
Large APRA superannuation funds manage millions or billions of dollars of assets. This sometimes limits them to large, publicly tradeable assets, such as Australian and international shares, fixed interest (bonds) and large property assets like office towers and commercial real estate. SMSFs can invest in these as well. However, they can also spread investment into smaller single investments or small property holdings.
SMSFs can contain specific investments such as houses, physical gold, artwork and collectables, and investments in certain unlisted entities. To be compliant with the law, fund trustees must follow strict rules about these investments.
Market agility
This flexibility and control also means that self-managed super funds can sometimes move faster than their APRA-regulated counterparts when market conditions change. But that can only happen if the people managing the SMSF stay on top of changes and issues that are important.
Property as an Investment
Some retirement savers with an SMSF like to have a specific property as part of their superannuation.
But there are some disadvantages of self-managed super funds too…
It’s important to understand the challenges an SMSF might bring.
Compliance
Staying on top of regulatory rules and obligations can be a challenge. Every year the rules change slightly. You (or your advisors) need to stay on top of the changes to ensure you are not breaking the law. On the flipside, APRA-regulated funds have many employees. They are usually better able to adjust investments and the way a fund is managed, when superannuation rules change.
Time costs
From a member perspective, self-managed super funds can also be costly and time-consuming. In fact, 38% people that participated in a 2018 Australian Securities and Investments Commission (ASIC) study said that running and managing their SMSF was a bigger time investment than they had originally planned for. Much of that time involves administration and legal compliance – not investment decisions.
Financial and legal costs
32% of respondents in the ASIC study reported that the set-up costs and ongoing administration fees were more than they had budgeted for.
A further 29% said they believe they are entitled to legal protections and compensation for fraud and theft involving their SMSF. However, that is not true, and it’s an important thing to understand correctly.
Advantages of an APRA-Regulated Super Fund
Simplicity
This “normal” type of super fund is managed by professionals who take care of how your money is invested to grow over time.
For typical taxpayers, this is attractive, because normal working people typically don’t want to study the best ways to invest and manage funds. They may lack the expertise needed to properly manage their own super. Most people choose to leave the details to the experts, who they trust to manage their super fund.
Size
Big super funds can buy all types of investments, on your behalf, including international stocks and business investments that are difficult or impossible for a “DIY” SMSF investor to access. Also, because some big super funds are so large, they may have a bit of extra clout to influence the management of investments, aiming to get better outcomes.
Lower Fees
There are fees involved, with ever sort of superannuation fund. But the fees charged by most APRA-regulated super funds are lower – in some cases much lower – than the cost of managing an SMSF.
Investment Performance
Some studies show that APRA-regulated funds have better growth over time than SMSFs.
This may vary over time. For example, because SMSFs often contain Australian shares, when Australian shares surge, the value of SMSFs might move ahead. However, APRA-regulated funds are typically more diverse, containing a complex mix of different investment types. This may make them more stable when any downturns happen.
Some other studies show SMSFs performing better than APRA funds. It is important to note that some of the best-performing SMSFs are actually handled by expert investors who get big returns. A typical Australian might not have the expertise to manage their SMSF so well. A novice investor’s SMSF might lag behind the big, APRA-regulated funds.
Less Work for You
APRA fund members generally prefer that they’re not responsible for the day-to-day management and compliance of their super fund; they can leave it to professional fund managers who handle all the details.
APRA-Regulated Funds Are Not All The Same
Super funds are different to each other. They have different investment strategies and have different people managing them.
Some APRA funds have much higher fees than others. The annual fees you pay can really take a bite out of your super fund’s value in the long run. That’s why it’s important to know how much you really pay in fees. This includes fees for any insurance that’s bundled with your superannuation.
Choose your risk
Another thing that varies between super account options is risk. Generally, account options for “high growth” perform better than others when economic times are good, but high growth investments can also be more “volatile”. That means, they may take bigger falls than “conservative” or “balanced” accounts. Whether you choose a higher-risk and higher-return option, or a more stable and reliable balanced option, depends on many factors including your age, income, family and financial factors. You should get professional advice about this from a licensed financial planner. If you don’t know how to find a financial planner, you can ask your preferred super fund to connect you with a financial planner. They will to help you choose super fund options that are a best-fit for you.
How much super funds earn can vary
The super funds differ in terms of performance. The best funds deliver much better growth for your retirement savings. Just a few per-cent difference in investment performance can make a massive difference to your retirement savings over the years.
How does your super fund compare to the best ones?
You can compare the fees and performance of super funds at several different websites, including these below. Some of the super comparison websites may receive fees for linking to super funds. If you read the different sites carefully, you can see trends around which super funds are delivering the greatest value over the long term.
Finder – Best Performing Super Funds
CANSTAR – Compare Super Funds
ChantWest – Super Fund Ratings
Superannuation Statistics
APRA reported that, as of September 2024, APRA-managed funds held a total of $2.8 Trillion dollars in investment assets. SMSFs held total assets just over $1 Trillion.
As of late 2024, the ATO reported there were there were 638,000 SMSFs, owned by 1.2 million Australians. By comparison, there are over 22 Million individual accounts held at APRA-managed funds.
Comparing the total number of SMSFs to the total assets shows us that the average SMSF is bigger than the average person’s APRA-managed account. We should be careful not to confuse this as meaning SMSFs perform better; the stats are influenced by several things, including the fact that some of the wealthiest people have large investments in expertly-managed SMSFs.
One of the most common assets held in SMSFs is listed shares, which amount to 26% of SMSF investment. (If you don’t know what listed shares are, then an SMSF might not be the best choice for you.)
SMSF holders tend to be older people; 85% of SMSF members are 45 years or older.
The SMSF takeaway
Self-managed super funds can offer control, flexibility and sometimes greater choice. However, there’s a risk that SMSFs may under-perform against APRA-regulated funds, especially if they are not managed with expertise, and they can be more costly and time-consuming than anticipated.
That doesn’t mean that a SMSF is a bad choice for you, as everyone’s circumstances are different. Therefore, it’s important to seek detailed financial advice relevant to your personal circumstances.
Please note: The information on this page is general in nature and should not be relied upon as detailed advice. Each situation is different and we recommend you seek the advice of a licensed financial planner who can assess your unique circumstances and provide you with detailed advice about the best superannuation option for you.
