How Much Super Do You Need To Set Up An SMSF?

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How your balance affects costs

Many SMSF costs, such as the audit, the supervisory levy and the annual return, don’t rise much with the size of the fund. So the smaller the fund, the bigger the share of its assets they take.

In 2023–24, operating expenses averaged 4.0% of assets for funds with $50,000 to $100,000, 1.3% for funds with $200,000 to $500,000 and 0.8% for funds with $500,000 to $1 million, according to the ATO.

SMSF operating expenses as a share of assets, by fund size, 2023–24

Operating expenses are the audit fee, management and administration expenses, the ATO supervisory levy and other amounts, compared with average fund assets. Funds with up to $50,000 averaged 11.0%. Source: ATO, Self-managed super funds: A statistical overview 2023–24

How returns differ by fund size

Smaller SMSFs have generally recorded weaker average returns in the ATO’s figures. The ATO’s return on assets measures each fund’s net earnings as a share of its assets at the start of the year.

In 2023–24, funds with $200,000 to $500,000 averaged 8.8%, and funds with $500,000 to $1 million averaged 9.8%. Below $200,000, results were much weaker. Funds with $50,000 to $100,000 went backwards on average in four of the five years to 2023–24, and funds with up to $50,000 in all five.

Higher costs relative to assets help explain the weaker results among smaller funds.

Average SMSF return on assets by fund size, 2023–24

Return on assets is a fund’s net earnings divided by its total net assets at the start of the year. Funds with up to $50,000 averaged -12.6%. Source: ATO, Self-managed super funds: A statistical overview 2023–24

These are averages for groups of funds, so an individual fund can do much better or worse. The ATO calculates them differently from the returns APRA reports for large funds, so use them to compare SMSFs of different sizes rather than to compare SMSFs with other funds.

How your balance affects diversification

A larger balance makes it easier to spread money across several asset classes, and to hold assets that need a large outlay without tying up most of the fund. Smaller funds can still diversify, for example through managed funds or exchange traded funds that hold many investments in a single product.

In practice, smaller funds tend to be more concentrated. In 2023–24, 43% of SMSFs held 80% or more of their assets in a single asset class. That rose to 74% of funds with up to $50,000 and 55% of funds with $200,000 to $500,000, but fell to 37% of funds with $1 million to $2 million. The ATO also found the share of assets held in cash and term deposits tends to fall as funds get bigger.

Concentration in one asset class isn’t the same as holding a single investment. A fund with most of its money in listed shares could hold one company or dozens.

Buying property can require a larger balance

Direct property is one of the main reasons people start an SMSF. But SMSFs can no longer use new borrowing to buy residential property, so the fund needs enough to buy it outright. A property can then make up most of a smaller fund, and it brings extra costs such as valuations, insurance and maintenance.

What do new SMSFs start with?

The median starting balance for new SMSFs was $345,366 in 2023–24, meaning half started with less and half with more. The median balance per member was $158,385. Of the funds set up that year:

• 30.6% started with $200,000 or less
• 33.1% started with $200,000 to $500,000
• 26.5% started with $500,000 to $1 million
• 9.9% started with more than $1 million

Why balance isn’t the whole answer

ASIC’s case studies for advisers show how the same balance can lead to different answers. Two couples each have $172,000 in super.

For Lauren and Chen-Xi, an SMSF may be suitable. They have the interest and time to manage their finances and a strong surplus cash flow. They also have the capacity to keep contributing, which could reduce costs as a proportion of their fund’s balance.

For Naira and Ted, it may not be. They are time poor, lack investment experience and are putting their spare cash towards buying a home, so the costs would be difficult to justify compared with staying in their existing funds.

Weighing it up

Before you decide, check:

• Your fund’s total balance across all members, and how much you expect to add over the next few years
• How you plan to invest, and whether you can diversify at that balance
• The likely annual costs compared with what you pay now
• Whether you’ll want advice, and what it will cost
• Whether you have the time and interest to take on the responsibilities of running the fund

To see what you pay in your current fund, check its fees in dollars at your balance with our super fund comparison tool.