Can I Have An SMSF And An Industry Fund?

It’s compulsory for employers to pay employees superannuation in Australia, so you’ll typically create your first account with an industry or retail fund when you start working. Industry funds are not-for-profit organisations, regulated by APRA, where member contributions are invested and managed by professionals.

Some people establish an SMSF in addition to their industry fund as a tax-efficient way to gain more control over how their retirement savings are invested. While you can start a self-managed fund at any age, the median age of SMSF members of new funds in 2021-22 was 46 years old. SMSFs offer investment opportunities not possible through an APRA-regulated fund, such as investing in residential property or collectibles like artwork. You might even set up multiple SMSFs to cater to different investment strategies or family groupings.

Director of consumer advocacy group Super Consumers, Xavier O’Halloran, says that when you reach preservation age—the age at which you can start taking money from your super—you might create a new account or fund to transfer some money into a pension structure, while maintaining a separate account to keep accumulating savings.

He adds that keeping a valuable insurance policy is also a priority for some.

“One of the reasons why people might keep an industry fund as well as an SMSF is that they may have some default insurance in their industry fund that they wouldn’t have had to be underwritten for if it was their employer’s default,” O’Halloran says.

“So it might not be insurance that they could otherwise get, because they’d be subject to medical testing and underwriting and things like that.”

He warns that people sometimes held onto an industry fund for insurance reasons, only to find out later they don’t meet all the conditions, such as a requirement to be working full-time. Holding more than one policy of the same kind can also be a waste of money.

“As an example, typically, the way income protection policies work is you can only claim against one income protection policy. So if you pay for two, you may be paying for something you can’t actually use,” he says.

“We really encourage people to call up their super fund and explain their situation and find out if the insurance they might be paying for or keeping in one of those accounts—because they’re afraid of losing it—is actually valuable, and they could actually claim on it.”

O’Halloran says members need a good reason to keep two funds—and pay two sets of fees.

“If you don’t have a specific purpose, it can end up costing you a lot of extra money because you have fixed fees in any kind of management of super, whether it be an APRA-regulated fund or an SMSF,” O’Halloran says.

“You’re gonna be paying those regardless, and across multiple accounts that adds up—basically doubling your fees.”

In addition to a range of establishment and annual costs involved in running an SMSF, another downside of having an SMSF on top of an industry fund is the complexity of its administration. As an SMSF trustee, it’s your responsibility to carefully manage assets to benefit members and in compliance with superannuation laws. It requires time and financial literacy.

O’Halloran says that while being able to directly manage investments via an SMSF may be appealing, there is a huge suite of different investment classes and options available within industry funds.

“When you’re making these assessments about whether to go into an SMSF just make sure you’re comparing apples with apples, because there are lots of differences but also a lot of similarities in terms of what you can achieve through both types and funds.”

Opening multiple accounts can’t be used as a means of “getting around” balance and contribution cap rules. The ATO considers contributions and transfers made across all your funds.

It’s also important to keep in mind that establishing multiple funds with the explicit goal of tax avoidance could get you into hot water with the ATO.

Previously, when there was speculation that SMSFs would establish a second fund to counter changes to super laws, the ATO cautioned it would closely scrutinise behaviour “where the dominant purpose appears to be to create a more beneficial tax outcome for an SMSF or its members”.

A number of Aussies have accounts with multiple industry super funds by accident. It tends to happen when people switch jobs—they might not know, or forget, which super fund they were contributing to previously and nominate a new fund. Back in 2018, the Australian Productivity Commission looked into our super system and found around 10 million Aussies had more than one account unintentionally—costing people $2.6 billion a year in avoidable fees and insurance costs.

After a public education campaign, the number of people with multiple accounts has lowered significantly to around four million Australians, as of June 2023. Now, 77% of us have just one account, 18% have two, while just 5% of people have three or more.

O’Halloran says that while the Australian Government had introduced a ‘stapling’ process that means employees’ superannuation fund information is carried over between employers, it doesn’t always prevent new accounts being created. Especially if a workplace uses onboarding platforms that present preferred super fund options designed to manipulate consumers.

“These platforms are kind of getting around some of the reforms that government have introduced in recent years to curb the growth of multiple accounts. That’s a bit of a worry for us,” he says.

“People can fall into the trap pretty easily of creating a new fund and not realising that their existing savings won’t come across with them, which obviously adds a whole bunch of extra costs.”

If you don’t want multiple industry funds, you can find your lost super and bring it all together. The easiest way is through your myGov account, provided you have it linked to the Australian Tax Office (ATO). Via your ATO account on myGov you can see all of your super accounts, and then transfer balances to combine your super.

“In most cases it should happen within about three days as well, that rollover, so it’s a lot quicker than it used to be too, so long as they’ve got your correct ID on file,” O’Halloran says.

Wondering how to decide which fund to consolidate your balances into? O’Halloran says you should look at the performance net of fees, and which insurance policies are most valuable and will pay out in your circumstances.

If you have both an industry fund and an SMSF and want to move all funds into a industry fund, you’ll need to make an electronic transfer (rollover) following the ATO’s processes, before winding up your SMSF.

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