One of the big attractions of running your own SMSF (self-managed super fund) is the prospect of paying lower fees than the alternative of investing your super in a retail or industry super fund. Ultimately, this comes down to the size of the SMSF  – the bigger it is, the more you can spread the fixed costs of accounting, audit, ATO supervisory levy, administration and potentially investment advice.

A little publicised rule change is about to make this possible for more trustees.

On 2 September, the Government introduced into the Senate The Treasury Laws Amendment (Self Managed Superannuation Funds) Bill 2020. The main purpose of the Bill is to deliver on a 2018/19 Budget commitment to increase the maximum number of members an SMSF can have from 4 to 6 persons.

For families with more than four members, currently the only real options are to create two SMSFs (which would incur extra costs) or place their superannuation in a large fund. This change will help large families to include all their family members in their SMSF.

The statistics show that multi-member SMSFs have not historically proved that popular, with 93% of SMSFs having two or fewer members. So prima facie, this rule change isn’t such a big deal.

However, there are several reasons why this change could give SMSFs another big boost.

There will be families like mine with three children. We did not want to “choose” just two and leave one child out, so we elected to make none of our children members of our SMSF. Families with up to four children will now be catered for. And while this still discriminates against families with five or more kids, there are a lot fewer of these.

Next, once you get to three or more members, admin tasks can get pretty messy for some SMSFs. Over the years, many SMSFs have been badly advised by accountants and financial advisers to adopt a structure where each member is individually a trustee of the SMSF, rather than using a company as the trustee. In fact, almost 90% of SMSFs make the members the trustees. This becomes a nightmare when trying to open a bank account with more than three names, registering shares, or dealing with a change in a member’s circumstances.

Fortunately, most advisers now recommend using a company as the trustee because it makes record keeping easier, is more permanent and is more agile in dealing with the death of a member or their incapacity. The only downside is a one-off registration fee to ASIC of $506 and an annual fee of $55.

But as the company trustee structure becomes better appreciated, multi-member funds are becoming more feasible.

Thirdly, in a low interest rate environment, the impact of fees on investment performance is   pronounced. A number of the fees that an SMSF pays are fixed – accounting fees, the ATO’s supervisory levy, audit fees and related admin fees – so getting more funds into the SMSF brings down the overall percentage cost. Because contributions are capped, the quickest way to boost the size of an SMSF is to add additional members. This will automatically lower the effective fee that each member is paying.

Finally, there is increasing awareness that SMSFs can act as estate planning vehicles. Because of the changes to the way distributions from family trusts are taxed, the tax rate on superannuation investment earnings of 15% looks pretty attractive. Getting your kids or grandkids into your SMSF, and then making a super contribution on their behalf, is a strategy to consider. Sure, your kids won’t be able to touch their super monies until they turn 60, but in the meantime, having a “retirement safety net” could mean that they can go harder at other key investment goals such as buying a house, investing in the share market, buying a rental property – rather than stashing their own money away in super.

They should be at least 18 years or older to be a company director, and will need a TFN (tax file number) to have a super account, but apart from these, there are no other restrictions. The legislation won’t be debated in the Senate until November at the earliest, so the rule change might not go through this year. But when it does, I sense that we are going to see a lot more three member, four member, five member and even six member SMSFs.