Super idea for school leavers
OVER the past few weeks thousands of Australian teenagers have reached a significant milestone in life.
Their final Year 12 exams are completed and their days as a school student are over. For many of these teens, the summer will be spent working in holiday jobs until uni or TAFE starts next year, others will take on permanent job. It's at times like these that parents can provide valuable final advice - especially when it comes to choosing a superannuation fund.
Young workers aged 18 or more who earn over $450 each month in before-tax wages, are entitled to employer-paid super contributions. It doesn't matter whether you're full time, part time or a casual worker, you're still eligible for these compulsory super payments.
Workers aged under 18 are still eligible to receive super contributions. But in addition to earning over $450 per month you will need to work more than 30 hours each week.
Holding a summer job that lasts several months, can mean earning a fair bit in employer-paid super. So it's important to know which fund these contributions are paid into.
Australians collectively have around $6 billion dollars sitting in unclaimed or 'lost' super accounts. A great deal of this money is the result of casual or part-time workers losing track of their super.
By the time today's teens have reached retirement age, the super earned this summer will have grown into something substantial. So it makes sense to choose a fund that can stay with today's teens for life.
Most workers have the option to choose the super fund they want their employer contributions paid into. Once an employee has decided on a fund, you need to let your employer know the details in writing, providing you and your employer a clear record.
The key issue is which fund to choose. There are two main types of fund to select from - retail and industry funds. Many industry funds operate on a non-profit basis, so the annual fees are low. Retail funds on the other hand, tend to offer a broader range of investment options.
Both have their merits, and the main point is to take a look at the different options available rather than simply, accepting an employer's default fund.
For young people, with plenty of time to retirement, it makes sense to choose a growth option within their super fund. This should maximise the capital growth of a nest egg over the very long term until retirement.
Whichever fund is chosen, I cannot stress enough the importance of keeping track of the fund details plus the relevant account number, and notifying the fund if your son or daughter change their address.
Over recent years a number of smaller funds have combined to gain cost and investment efficiencies, and this is likely to continue in the future. It's essential for fund members to be able to track their super savings over the forty or more years spent in the workforce. The only way to do this is by maintaining good records and having an active interest in your super from day one.
Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine. For more, visit www.paulsmoney.com.au