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Self-managed super funds are growing. And not just in size, but also as an increasingly popular option for Australians to manage their retirement savings.
This type of superannuation is when members essentially liquidate their industry super and start their own. They then have the ability to manage their funds and decide where to allocate resources, versus an industry super, where investments are dictated by an employer. Some of the benefits include member tax breaks and the ability to borrow money from the SMSF in order to purchase property.
It's not surprising then that these types of funds are on the rise amid the promise of higher returns and more power over one's own finances. In Australia, SMSFs reached 625,609 in June 2024, up from 563,474 in June 2019, according to the latest data provided by the Australian Taxation Office. Market research firm IBISWorld had similar data, showing that in the five years leading up to 2024, assets in the SMSF industry grew at an annualized rate of 1.3%.
At Sydney-based brokerage Blue Crane Capital, applications to borrow within an SMSF increased 200% in the last year, according to founder and manager director Chris Hall (pictured above left).
"More people are wanting to take control of their super," Hall told Australian Broker. "People want to control their life savings, versus giving it to someone else to control it for them."
Bluestone Home Loans started lending within SMSFs two years ago. The business now accounts for about 12% of all lending, according to Tony MacRae, Bluestone chief commercial officer.
"We don't set up the self-managed super, but we do the lending within a self managed super structure," MacRae said. "In the last 12 months, there's probably been more new entrants participating in providing self managed super fund lending than in any other space."
There are many benefits to starting a SMSF. Aside from flexibility and control, members also receive tax breaks for borrowing within their own super to purchase property.
"An SMSF is quite appealing for a business owner that's also a tenant," Hall said. "They get an opportunity to buy the actual freehold property within their super. There's a lot of tax advantages to do that down the line. Members can use that money to then buy a property within their super. They can go up to 80% on residential property within super, and up to about 70% on commercial property within super."
But, he added, "Members can only invest the money. They can't just pull it out [to spend freely] until retirement age."
Matthew Porch (pictured above right), head of distribution at private lender Aquamore Finance, said most of his firm's exposure to SMFSs is through property-backed financial transactions – and they're increasing.
"A lot of self-employed customers are choosing to purchase a premises and rent it back to themselves through the self managed super fund structure, which, in my opinion, is a very good way to go," he said. "It gives you a tangible feel on your investment, allows you to manage it yourself and understand the capital growth that you're going to get out of it. Why pay someone else's rent when you could be doing that to fund your own retirement? That is kind of the way that I see it."
Brokers and lenders agree, while there are advantages to SMSFs, these types of funds can also be complex.
For one, despite SMSFs being self-managed, they are still heavily regulated by the government, said Alissa Childs (pictured below, right), co-founder and mortgage broker at New South Wales-based Two Birds One Loan.
Elouise Dooley (left) and Alissa Childs (right) are cofounders of NSW-based brokerage Two Birds One Loan.
"They're audited every 12 months to make sure you're not using and spending that money for things at least shouldn't be," Childs said. "It's risky, because some people might do the wrong thing with that.
But she added, "it's actually a really good strategy for managing your own portfolio. People do it to have more control over what they're investing in. And you can choose to take risks and invest in shares that might have higher returns. But obviously the risk is that if you invest in the wrong thing, you could lose some of your superannuation."
Childs also pointed out that the structure of SMSFs can be somewhat complex.
"It's probably something that a lot of brokers shy away from, because it's quite a different loan scenario to what a typical residential transaction would be," she said. "You have to understand the structure and the borrower, who's borrowing and who goes on the title of the property. The interest rates on them are quite a bit higher than a standard loan. And the turnaround times can be quite horrendous. I'm not going to lie; there's a lot of paperwork. The lenders need lots and lots of documents, and they're very particular about certain things. But also they're quite sticky. You typically wouldn't refinance these loans because they are quite expensive to set up. But yeah, they are a lot of work; they're not easy. I think unless you're someone who plays in that space, I think a lot of brokers probably don't do them."
