How Much Money Do You Need to Start a SMSF?

By Trish Power

A popular question asked by prospective trustees is: How much money do you need to justify a DIY super fund as a cost-effective super option? The good news is that the financial services regulator, the Australian Securities and Investments Commission (ASIC), has commissioned research to uncover what the magic starting balance might be for a self-managed super fund (SMSF).

If all DIY super funds were run similarly, and had identical costs, the ideal minimum balance for a cost-effective SMSF would be easy to identify. The magic figure for everyone considering a SMSF is then the fund balance that enables a SMSF to cost less than an alternative super fund, such as an industry super fund or retail super fund.

The more practical answer is that the minimum necessary to enable a SMSF to be financially viable depends on the individual costs of your SMSF, and those costs can then be compared to what you would be charged if you opted for a large super fund option rather than a SMSF. A low-fee large super fund charges, on average, roughly just over 1 per cent of your account balance in fees. If your SMSF costs are greater than 1 per cent of the value of your SMSF assets, or greater than the costs of the large-fund alternatives available to you, then your SMSF’s fund balance may not be the most cost-effective balance.

Even with different cost levels across all SMSFs, ASIC has commissioned research, conducted by Rice Warner consultants, to discover what the minimum cost-effective fund balance is for a SMSF.

At least $200,000 and up to $500,000

According to ASIC’s SMSF research, if SMSF trustees undertake some of the fund administration responsibilities themselves, rather than appoint a service provider to do everything, then SMSFs with fund balances of $200,000 can be cost-competitive when compared to large funds, such as industry and retail super funds. The proviso is that the research deals with averages, so some SMSFs will be cheaper to run and some will be more expensive, depending on fees charged and the service level required.

If you want a full administration service for your SMSF, then the minimum fund balance is likely to be $500,000 if you want your SMSF to be cheaper to run than other non-SMSF alternatives.

The research found that if you chose a lower-cost SMSF service provider and held straightforward investments, you could receive full-service administration and be cost-effective with a balance of $250,000.

Balances of less than $150,000

SMSFs with fund balances of between $100,000 and $150,000 can be competitive against traditional retail personal super funds, but not cost-effective when compared against industry funds and the new lower-fee retail super fund offerings.

If you expect to start a SMSF with less than $100,000 in superannuation savings, the ASIC research found that a $100,000 fund balance is only cost-effective if you plan to make large super contributions or transfer super amounts from other funds, within a reasonable timeframe.