What is the minimum deposit for SMSF?
There is no legal minimum deposit required for starting a self-managed super fund (SMSF), though research from the SMSF Association suggests $200,000 as a practical minimum starting amount. Individual circumstances should be assessed and advice from a financial advisor is always recommended. Keep in mind that as accountants SMSF Australia does not dictate any recommended minimum balance to clients as we do not give any advice in that area.
SMSF Starting Balance Recommendations
ASIC historically recommended $500,000 as a minimum but revised this in INFO 274 (December 2022) following industry feedback. A February 2022 University of Adelaide report, commissioned by the SMSF Association, and earlier Rice Warner research both found that SMSFs are viable with net assets of $200,000.
A 2020 study by Rice Warner compared the operating costs of SMSFs and APRA-regulated funds, finding that at a balance of $200,000, SMSFs were competitive on operating costs, and at $500,000, SMSFs were generally less expensive. In 2022, the University of Adelaide reported no significant performance differences between SMSFs and APRA funds within balances ranging from $200,000 to $500,000.
Research from both companies supported that costs became more expensive and performance indicators decreased when SMSF balances were under $200,000.
ASIC View on SMSF Setups
ASIC’s INFO 274 offers guidance to financial planners on providing SMSF advice. The document outlines considerations individuals should also look at when establishing a new SMSF.
Consider the following:
- obtaining financial advice about setting up and maintaining an SMSF
- professional assistance to make investments and operate the SMSF i.e. accountant, auditor, financial planner, stockbroker, real estate agent
- family and individual wealth outside of the fund
- financial objectives of the individuals
- time to operate the fund and make and review investment choices
- financial knowledge and experience of the individuals
- the compliance risk factors in operating an SMSF compared to an industry or retail super fund
- understand how an SMSF operates under a trust structure and the responsibilities of being an SMSF trustee
- costs of establishing and running an SMSF compared to an industry or retail super fund
- is there an expectation in the future of relocating to a foreign country or spending a lot of time outside of Australia
ASIC has stated that the minimum deposit required to start an SMSF is just one of several factors to consider. They cited two cases: one involving funds with a starting balance of $172,000, and another involving funds with a starting balance of $512,000.
Example 1 -$172,000 start-up balance (refer to link above for full details of the example)
Couple 1 – Lauren and Chen-Xi (no children)
Couple 2 – Naira and Ted (two young children)
Both couples are in the same age bracket and had combined income of $250,000 and surplus cash of $30,000. However, home ownership was considered to be crucial and Lauren and Chen-Xi owned their own home with a small mortgage. Whereas the primary goal for Naira and Ted was to buy their family home.
The advisor considered that Lauren and Chen-Xi may have sufficient financial knowledge and experience, interest, willingness and time to actively manage their SMSF responsibilities and have a strong cashflow and good engagement with their professional advisors to successfully establish and operate an SMSF.
The advisor considered that Naira and Ted had no investment experience and did not have the time to manage their SMSF responsibilities due to their family and full-time work commitments. Due to Naira’s health issues it was important to maintain her existing insurance arrangements in her APRA fund.
Under these circumstances the advisor considered that Lauren and Chen-Xi with an initial start-up balance of $172,000 could viably undertake the establishment of an SMSF.
Example 2 – $512,000 start-up balance (refer to link above for full details of the example)
Participant 1 – Benito (divorced and still single and no financial dependants) 51
Earns $200,000 and owns his own home. He is a long-term employee and has accrued several months of parental leave, long service and annual leave. He has $40,000 surplus p.a. His brother runs his own SMSF and Benito understands the operation and structure of an SMSF. Benito is employed in the power and energy industry. He is particularly interested in green energy. Benito researches and understands investment opportunities and he inherited a share portfolio. He is in good health.
Objective – working towards a comfortable retirement in 10 years
Participant 2 – Otto and James (same sex married couple and no financial dependants) Otto is 62 and James is 63
Combined Otto and James earn $110,000. They have just sold their boating business and are consulting for the next 12 months until they intend to retire. The business proceeds will extinguish debt on their family home and their holiday home near the beach. The holiday home is rented out on a short-term basis. Both are in good health.
Objective – retiring in 12 months and want a simpler life after running a business which was time consuming and stressful.
The advisor considered that both participants would have the attributes to understand and manage an SMSF.
Benito has an interest and time to research SMSF operations and investments. He can also use his SMSF to invest into green energy renewable opportunities which he can’t do in his current APRA fund. Benito can invest his surplus cash into his SMSF to bolster his retirement funds. The advisor considered Benito could start an SMSF as he had the time, interest and financial experience. He was also engaged with and understood the benefits of retaining a financial advisor on an ongoing basis.
Otto and James have demonstrated they have the ability to understand and manage an SMSF. However, the main objective of their retirement was to have a simpler life, and the advisor considered an SMSF was not a suitable vehicle for them as it did not align with their objective to have a simple stress free life in retirement.