The more super accounts your teen has, the more they could be paying in fees. Since teens are likely to have temporary and casual jobs, they could be more prone to accumulating multiple super accounts - each with low balances at risk of erosion by fees. For this reason it's important to help your teen understand how consolidating multiple super accounts could help them save money and build wealth. Here's how to help your teen with super consolidation.
Super account fees: how they work
All super funds charge some form of fees, though some offer low-cost accounts. Fees are deducted from your super balance, and so your kids could build up their super balance faster if the fees are lower, all else being equal. For example, a 1% difference in fees could equate to 20% in 30 years when it comes to your teen's super balance.
The common fees charged by super funds include administrative fees, investment management fees, and insurance costs. Administrative fees are charged to cover the expenses of running the fund. Investment fees cover the costs of managing the investment, so they can vary depending on the investment strategy you choose (for example, high risk, conservative, or low risk). Insurance costs are included by default in all MySuper funds on top of the fund fees. Insurance charges can vary depending on the fund and your individual circumstances. Other fees could be switching fees, advice fees and exit fees.
Your child's super annual statement, product disclosure statement, and the fund's website will provide information about what your teen is paying in fees.
What consolidating super means
If your teen has worked multiple jobs, they could have one super account for their summer job at the chemist, another for their part-time retail job, and yet another for their job at the deli. Consolidating super basically means moving your child's super into a single account. As the account owner, your teen can choose one account and move all their super into this account.
While there's no requirement multiple super accounts have to be consolidated, as noted above, it's usually better to keep just one account so you can minimise fees as well as paperwork.
How to consolidate super accounts
Like consolidating debt, consolidating your child's super accounts can make it easier to manage and lower the total fees your teen ends up paying. By merging super into one account, your child will likely save costs, minimise paperwork, and find it easier to track their super.
The process isn't complex if you know what you're doing. You can start by reviewing super accounts to decide which one is best for your child. It might be one your child is already a member of or it could be a completely new one.
- Exit fees - Check if there are any exit fees for each account.
- Insurance - Does your teen have any insurance with any of the super accounts? Does he or she need the insurance? If so, which fund offers the best insurance option and premium levels?
- Fees - Compare the fees charged in each fund. This could be calculated by percentage and/or fixed amount.
- Total balance - Add up the total super held by your teen, then find out expected fees and returns with each super fund. You can also check return targets with different investment options available with each account if they offer investment options.
After checking the above, you'll get a good idea of which fund might best suit your child's needs. If it's a new fund, you'll need to open an account with them. Make sure you get all the account details your teen will need to give employers, from the super fund. Ask the super fund how to transfer existing super balances to the new account. You might be able to consolidate over the phone, online, or through mail.
Usually the process will involve using your child's Tax File Number to complete a super search, then they can select which funds they’d like to transfer into their account. The new super fund or the chosen super fund will take care of the rest of the process, by requesting the transfer from your child's old super funds. The transfers should occur within a matter of days.
If your child is moving their super into an existing account, you could do this through myGov by following the instructions.
Notifying employers
Make sure your teen nominates their preferred fund on the superannuation standard choice form, which their employer will give them when they start a new job. If they have an ongoing job and want to change funds, they can do so, but they can ask their employer to change their nominated fund no more than once a year.
Most, if not all super accounts have some form of fees, so the more accounts your teen keeps, the more administrative fees they're paying. By consolidating super funds and maintaining just one account, your teen could save a lot on super fees. This allows their super to work harder for them, rather than having it eroded by unnecessary charges.
At Student Super, we realise that students sometimes have many different accounts, all being charged fees, which is why it’s so important that you consolidate your super. If you need more advice, speak to our team today.
