Too hard to set minimum SMSF entry

Self-managed super funds (SMSFs) should have a large enough balance to ensure running costs don’t exceed about 1.5 to 2 per cent of the fund balance, but setting a strict entry barrier is not the answer, according to several SMSF experts.

Speaking at a SMSF roundtable in Sydney, Matthew Harrington of Godfrey Pembroke Specialist SMSF providers said a minimum entry level could help avoid funds being started at a level that wasn’t viable.

“We’ve seen people walk into our office with their head in their hands saying: ‘I set this self-managed fund up with a $50,000 balance in it, and it’s costing me $2000 to 3000 [each year] to administer and audit the fund’. On a $50,000 fund that’s a pretty big problem — that’s 6 per cent of your account balance each year that’s gone in those fees,” he said.

Harrington’s view was that a SMSF shouldn’t be spending more than 1.5 per cent of the total account balance each year in necessary running costs such as audits, which would tend to place the average fund at a minimum of $250,000-$300,000, although it was difficult to settle on a figure that could be used as a strict minimum.

A SMSF that was paying for other services such as advice would need additional funds to ensure it wasn’t paying more than the 1.5 per cent, he said.

Self-Managed Super Fund Professionals’ Association of Australia director Peter Hogan said he wouldn’t like to see a set minimum introduced.

The industry is now self-regulating, whereas five years ago around a third of SMSFs had less than $100,000 in them. Now the average fund balance is over $900,000.

“2 per cent is probably the rule of thumb that people use at the moment, which tends to put it at around the $200,000 mark, but people do set them up for reasons other than cost and that should be taken into account,” he said.