Q: Hi, I am inquiring on behalf of my son who is unable to work at this stage of his life. It has been three years since he worked. He doesn’t have much in the fund and it is going down every year. Is there any way to stop the bleeding of his funds? I will be ever grateful if you could help.
Trish’s response: It is not clear from your question whether your son is studying, unemployed or unwell.
Generally speaking, you can expect a few charges to be deducted from a super account and the biggest charge of all is usually the 15% earnings tax (and contributions tax on employer contributions and other before-tax contributions). Some super funds offset some of the earnings tax bill by investing in companies that pay tax-friendly dividends.
In addition to the Government tax bill, your son’s super account may have one or more insurance premiums deducted from the fund, plus an annual administration fee, and usually an investment management fee (although that is sometimes built into the reported investment return).
If a super account holds less than $1000, and it contains Superannuation Guarantee (compulsory employer contributions) amounts, then the super fund is required to ‘protect’ the account under the Member Protection Rules.
Member protection rules: Such a ‘protected’ account is treated differently to a regular super account because any administration fee that the super fund charges cannot be greater than the investment return credited to the super account. For example, in the past couple of years, most super funds have suffered negative returns, which means, any ‘protected’ account should not have been charged an administration fee, with one exception. If the investment return/loss doesn’t cover the administration fee for the fund, then the super fund has the option of charging the super account up to $10 more. In the earlier example, the super account would then be charged a $10 administration fee.
Note that a ‘protected’ super account is still subject to taxes, and insurance premiums.
Generally speaking, a super fund that has a total annual cost (excluding insurance and taxes) of substantially more than 1% is considered a high fee fund, although accounts with small balances seem to get hit hardest in the cheaper funds as well. If you believe that your son’s super account is charging high fees your son can check out what other super funds are available. A starting point may be the following articles on this website:
- Comparing super funds: check out the cheapest funds
- FEEding frenzy: super fund fees
- Comparing super funds in 8 steps
- 12 legal reasons to cash your super
Super for beginners, part 11: Is my super fund good enough?
Super fees: how much should a fund charge you?
Cut fees: Combine super accounts
Super for beginners, part 13: Why pick one industry super fund over another?
Super for beginners, part 3: Why aren’t my super contributions tax-free?
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