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Michal Lancemore

SMSF Pros and Cons

Written by Michal Lancemore

Self-Managed Superannuation Funds (SMSFs) have been dominating my conversations with clients of late.  I have one and my main motivation in doing so was to invest in direct property.  I had exhausted my borrowing capacity in my personal name, so using my superannuation was the only other way I could achieve my goals.

SMSFs are private superannuation funds that you manage yourself, offering greater control over your retirement savings and investment strategies. They can be an attractive option for those who are keen on tailoring their investment portfolio to suit their personal financial goals, including the option to invest in property.

In terms of how much one needs to establish a SMSF, over the years there has been much discussion of the issue by the Australian Taxation Office (ATO), which administers SMSFs, the Australian Securities and Investments Commission (ASIC), which regulates the financial industry, and the Productivity Commission. The consensus was that having at least $500,000 in super is a good yardstick, but this was challenged by the SMSF sector which eventually commissioned its own research.

The latest research by the University of Adelaide for the SMSF Association found SMSFs with $200,000 or more in net assts can be competitive with industry and retail funds both in terms of cost and investment performance.

The introduction of products like Hub24’s offering for SMSFs indicates a trend towards making these funds more accessible to younger professionals, allowing them to start building their retirement savings from an earlier point than traditionally possible with SMSFs.

This report outlines the pros and cons of SMSFs, with a focus on purchasing property within an SMSF and the benefits therein, as well as highlighting the new Hub24 product.

Pros of Self-Managed Super Funds

Investment Control and Flexibility

SMSFs offer unparalleled control over your investments, allowing members to tailor their investment strategy to meet their personal financial goals and risk tolerance. This includes a wide choice of investment options like stocks, bonds, and direct property.

Potential Tax Advantages

Investing through an SMSF can offer significant tax benefits, including lower tax rates on investment income and capital gains, particularly if the investment is held until retirement.  In pension phase, there is no tax on income or growth so waiting until this phase to sell out of assets is ideal.

Estate Planning Benefits

SMSFs offer greater flexibility in estate planning. Members can more precisely control how their superannuation benefits are distributed upon their death.

Purchasing Property

One of the key advantages of an SMSF is the ability to invest directly in residential or commercial property. This can be particularly appealing for those looking to diversify their investment portfolio beyond traditional stocks and bonds.  As I mentioned, this provides an ability to invest in super if personal capacity is exhausted.  It is also a great way to purchase commercial property for small businesses and have their business rent the property from the SMSF.

Benefits of Purchasing Property in Your SMSF

  1. **Tax Efficiency**: Rental income from a property held within an SMSF is taxed at the concessional rate of 15%, which can be significantly lower than personal income tax rates. Additionally, if the property is sold during the pension phase, capital gains tax may be reduced or even exempt.
  2. **Asset Diversification**: Direct property investment can provide diversification to your retirement portfolio, potentially reducing risk and improving returns over the long term.
  3. **Income Stream**: Property within an SMSF can generate a steady income stream through rent, contributing to the fund’s growth and providing financial benefits in retirement.

Cons of Self-Managed Super Funds

High Costs and Complexity

Setting up and running an SMSF can be costly and complex. Legal, accounting, audit, and tax reporting requirements can be burdensome, especially for those with limited financial or legal expertise.  I liken it to having another taxpayer in the house.

Comparison of annual costs of SMSFs (accumulation accounts)


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Investment Risks

The responsibility for investment decisions rests entirely with the members. Poor investment choices can significantly impact retirement savings.  Knowing your responsibilities as Trustees is paramount because the buck stops with you!

Compliance Risks

SMSFs are subject to strict regulatory requirements. Non-compliance can result in penalties and fines from the Australian Taxation Office (ATO).

Liquidity Concerns

Investing a large portion of the fund’s assets in a single property can lead to liquidity issues, making it difficult to cover fund expenses or benefits payments when they fall due.  This is why advice is required to ensure that not all funds available are sunk into a property.  Liquidity and diversity between assets is critical – particularly in pension phase when you are obliged to draw down a specific amount as a pension payment.

Hub24’s New Product for Young Professionals

SMSFs with less than $200,000 are generally only appropriate if you expect your fund to grow to a competitive size within a few years.

The latest ATO statistics show the only age group with a median balance of less than $50,000 is under 34-year-olds. The median balance rises to $110,000 for members aged 35–44.

Hub24’s innovative product aims to lower the entry barriers for young professionals interested in starting an SMSF. This solution offers:

  1. **Lower Start-up Costs**: Making it financially viable for younger investors to establish an SMSF.
  2. **Simplified Management**: Offering a platform that simplifies the management and administration of the fund, making it easier to maintain compliance and make informed investment decisions.
  3. **Educational Resources**: Providing young professionals with the knowledge and tools they need to successfully manage their retirement savings.

In conclusion, while SMSFs, particularly with the option to invest in property, offer significant benefits in terms of control, flexibility, and potential tax advantages, they also come with challenges such as high costs, complexity, and compliance risks. Hub24’s product represents an innovative step towards making SMSFs more accessible to a younger demographic, potentially reshaping the landscape of retirement planning. As with any financial decision, it’s crucial to weigh the pros and cons carefully and consider seeking advice from financial advisors to ensure that an SMSF is the right choice for your individual circumstances.

For more information about SMSF’s, click on the ATO link below:



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