Q: 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 his super 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.
It is not clear from your question whether your son is studying, unemployed or unwell.
Note: If your son has been unwell for an extended period then, depending on whether his super account has paid for disability insurance, he may have an option to access his super on disability grounds. The terms for such early release are very strict and specific, so you will need to do further research on this option. You can start by reading the SuperGuide article Can I access my super early because of my disability?
In relation to your main question, the first time you look at a member statement can be pretty confronting because you will discover there are quite a few deductions, but not all deductions relate to super fees charged by the super fund.
What are the deductions on my son’s super fund member statement?
Other charges include super contributions tax, earnings tax, insurance premiums and of course administration and investment management fees. I explain these items below:
- Contributions tax of 15%: 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% contributions tax (on employer contributions and other before-tax contributions). Australians on very high incomes pay an additional 15% tax on super contributions (known as Division 293 tax).
- Earnings tax of 15%: An earnings tax of 15% is charged against the investment returns of a super fund, although super funds may offset some of the earnings tax bill by investing in companies that pay tax-friendly dividends.
- Good news: Refund of contributions tax of up to $500 if earn less than $37,000: Since 1 July 2012, if you earn less than $37,000 a year, and your employer makes concessional (before-tax) superannuation contributions on your behalf, then you can expect a refund of the contributions tax deducted from your super account. The federal government calls this refund of super tax, the Low Income Super Contribution (LISC), and the refund is paid directly to your superannuation account by the Federal Government (note that from 1 July 2017, the tax refund is to be renamed the Low Income Superannuation Tax Offset). For more information on the LISC, see SuperGuide article Super tax refund for lower-income earners available beyond June 2017.
- Deductions for insurance premiums: In addition to the contributions tax bill, your son’s super account may have one or more insurance premiums deducted from the fund account.
- Administration fee and investment management fee: Your son’s super account is also usually charged an annual administration fee, and usually an investment management fee (although that is sometimes built into the reported investment return).
For more information on the types of fees that may be charged against a super fund account, see SuperGuide article Comparing super funds: 10 fees and charges you need to know about.
No more ‘member protection’ means higher fees
Until 30 June 2013, if a super account held less than $1000, and it contained Superannuation Guarantee (compulsory employer contributions) amounts, then the super fund was required to ‘protect’ the account under the Member Protection Rules. Such a ‘protected’ account was treated differently to a regular super account because any administration fee that the super fund charged could not be greater than the investment return credited to the super account. Note that a ‘protected’ super account was still subject to taxes, indirect fees (such as those fees deducted from investment returns before announcing a final return) and insurance premiums. For more information on what the removal of member protection means for Australians with small super accounts see SuperGuide article Fee hike for small super accounts.
How can I tell if my son is in an expensive super fund?
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 SuperGuide articles on this website:
- Super fees: Top 10 cheapest funds in Australia
- Comparing super funds: 10 fees and charges you need to know about
- FEEding frenzy: How much does your super fund cost?
- Fees: Do cheaper super funds mean bigger retirement balances?
- Fund choice: Comparing super funds in 8 steps
- Accessing super early: 14 legal ways to withdraw your super benefits