Starting up your own super fund can be very rewarding for those who are motivated and want to take control, but there are responsibilities.
While help can be brought-in to help run the fund, the responsibilities cannot be outsourced.
Fines of tens of thousands of dollars for breaches of the rules can be issued by Tax Office, which regulates SMSFs.
Andrea Michaels, a lawyer and managing director of NDA Law, who specialises in tax and super, says DIY funds can be great for those who are prepared to put in the work.
"But they are not for everyone," she says.
"You need to know the regulatory framework and you need to be interested and spend the time on the investment side of it also." Costs
The administration costs include things such as the annual audit, tax return and SMSF Supervisory Levy.
There are likely to come to about $2000 a year if using a fund administrator; likely more if using an accountant.
Then there are the investment costs, which will vary greatly depending on the mix of investments.
The costs of acquiring and maintaining an investment property will be much greater than investing in direct shares, for example.
Michaels says the minimum amount needed to keep the costs reasonable is probably $500,000. However, it depends.
A couple of higher earners, for example, who are making contributions to their super in excess to their compulsory contributions could start with less as they will build the balance quickly, she says. Loss of protections
Anyone thinking of starting their own fund should be aware that they will not have the protections provided to members of large funds.
For example, DIY super funds are outside the federal government's scheme that compensates members of a large fund in the event of theft or fraud.
DIY super funds are also outside of the Superannuation Complaints Tribunal, where disputes over, say, who receives a death benefit are resolved at no cost.
Michaels says that the only recourse for parties to disputes concerning DIY funds is through the courts. Insurance
There are potential disadvantages with DIY fund when it comes to life insurance.
Large funds are bulk buyers of death and total and permanent disability insurance, called "group" insurance.
Premiums can be very low and acceptance for cover, automatic, at least up to a certain amount of cover.
Buying life insurance as a trustee of a DIY fund usually means buying "personal" insurance.
It's likely to be more expensive and will probably involve a medical examination or, at least, a medical history to be provided to the insurer.
It could mean cover is denied. A CoreData survey of trustees of DIY funds in 2012 found many retained a small balance in their large funds to obtain the life insurance benefits. Large funds respond
Large super funds have been making direct investments, such as shares, available to their members, in part to help retain those members with higher account balances from leaving to set-up their own funds.
Kirby Rappell, the research manager at SuperRatings, estimates about 45 per cent fund members are in a super fund that offers direct investments.
These can include Australian shares, listed investment companies (LICs), exchange traded funds (ETFs) and term deposits.
Some funds have extended the list to included managed investments in hard-to-access asset classes.
For example, the fund for the construction industry, CBUS, offers two managed funds. One invests in office, retail and industrial property. The other invests in infrastructure assets like airports, roads and ports. Wind ups
It is usually not too onerous to wind up a fund but it can be complicated by interpersonal issues.
Michaels says there are life's events, such as illness, divorce and separation and death, where the fund may have to be wound up.
While it will be part of the split of the property it can be difficult when the two former partners are not talking to each other.
"Any decisions about the funds will need agreement and they will both have to sign the paperwork," she says.
A 61-year-old retiree posted on the internet forum Whirlpool in 2015 that he had only about $50,000 left in his DIY super fund.
"We know we had bad advice starting an SMSF, but the annual fees are now around $2000. We need to preserve what little money we have," he wrote.
It usually does not cost very much to wind up a fund, but as he had not lodged a tax return for the fund for the previous three years, he was up for a big bill to have the fund closed.
