When to think about closing down your SMSF

I’ve had a few new clients reach out recently who have SMSFs but want to begin the process to close them down.

They were super excited about them to begin with but over time, have found that they have occupied a lot of their time and not delivered the value they had hoped. So I thought I would write a blog on when you would consider closing down an SMSF.

First things first, what is an SMSF?

An SMSF is a ‘Self Managed Super Fund’. Whilst it might sound great to take control over your own super, having an SMSF means that you have essentially established your own super fund and have a lot of requirements to ensure that it remains compliant. This can be both time consuming and costly depending on how you approach it.

For the right person, an SMSF may suit them perfectly, but this isn’t always the case.

So when should you close down your SMSF?

I’ve listed 5 examples of when you may want to think about closing down your SMSF:

Example 1: The investments within your SMSF can be held in a standard super fund

A lot of people set up SMSFs under the erroneous belief that they can’t choose their own investments or have access to investments such as individual shares through a standard super fund. But this simply isn’t true. Most retail super funds (and even the major industry super funds) have the option of self-directed investments.

If your super fund holds investments which can be held in a standard super fund, you need to consider whether the cost of maintaining the SMSF is more than simply paying fees to a super fund.

The exception to this is direct property which is addressed below.

Example 2: You want to sell your direct property held in your SMSF

A lot of people set up SMSFs so that they can invest in direct property, either residential or commercial.

One of my favourite sayings when it comes to property is “you can’t sell a bedroom” so when it comes time for you to draw on your superannuation, in most instances, you may need to consider selling your property.

When this happens, this can be a good time to reflect on whether you still require an SMSF as you move into this next phase of your finances.

Example 3: The SMSF is too expensive

Most standard super funds charge you a fee that is a percentage of your invested amount. SMSF’s however have some set fees regardless of the size of your investment.

This means that for smaller balance super funds, the cost of maintaining an SMSF can be prohibitive in comparison with a regular super fund.

If you have an SMSF, it’s always worth comparing the fees to other types of super funds. Remember, your wealth is about your investment returns AND your fees.

Example 4: The SMSF has become time consuming or you aren’t sure what you are doing

When it comes to SMSF’s, all of the safety nets that come with a standard super fund don’t apply. You are entirely responsible for your money and if you make a mistake or do something incorrectly, you can quickly find yourself in trouble.

If you aren’t an expert in this area, you need to make sure you engage the correct experts to help you. This is a time-consuming process and a lot of responsibility will fall on you so if this doesn’t suit you, it may be time to reconsider your SMSF.

Example 5: You are getting older

Finally, it’s important to always remember that finances aren’t set and forget. What suits one part of your financial journey may not suit the next part.

As you get older and start drawing down your pension, it’s important to remember that there may come a time where your decision making isn’t as sharp as it is now. In this instance, you want to consider how to structure your superannuation now and automate it to make sure you’ll be sorted for later.

This is just a few examples of when you may think about closing down your SMSF. SMSF’s can be great tools in the right circumstance so it’s important to consider all the factors to determine what is right for you. As always, if you have any questions, please don’t hesitate to reach out.

This post is from our resident Financial Planner Ben Brett, check out his details in the About Us section.

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