Kids and SMSFs

SMSF technical expert and columnist for The Australian newspaper
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I’ve never been much of a fan of children joining their parents’ SMSF. Family disagreements and personal preferences can cause severe problems for an SMSF.

And I’ve always taken the view that employers who don’t pay Super Guarantee contributions after they’ve been nicely asked to fix the problem now should be reported to the Tax Office.

That’s the theory.  How have these two views fared in my own life?  I regret to say not so well.

Retail or industry super?

My daughter is about to start her second year at university.  For the past year she has worked part-time at a local cafe.

Now that she has some income,  the issue of employer super has come up.  At the rate she’s going, it’ll take at least five years before her account balance reaches $10,000.

Until she reaches that threshold, by my reckoning, all retail and industry super funds are too expensive. Most industry super funds charge $1.50 per week or $78 per year. They also charge about 0.9% per annum investment management fee. On the face of it, these fees seem pretty reasonable.  And in truth given the potential amount invested, we’re not talking sheep stations.

But with a $2,000 account balance, these fees are 4.8% per annum.  With a $5,000 account balance, total fees are 2.5% per annum.

Super funds offered to the public must be fair to all fund members.  Also you would expect that people with lower account balances probably cost more to have on the books than the fees they earn.

Moreover I’m a little unwary of managed funds and those in super in particular. A major part of my concern, which I’ll describe in another article is primarily caused by the lack of transparency.

Some retail and industry super funds offer investors the ability to invest directly into Australian listed equities but these products aren’t available for small account balances.

Her own SMSF?

I don’t think setting up an SMSF for her makes sense. Her account balance is too small so her contributions would be eaten up by fees. In any case, she can’t personally afford the setup costs and whilst we, as parents, could fund the establishment, we think this sets a bad precedent. Moreover, she freely admits she doesn’t know enough about investing money so having total responsibility isn’t really acceptable.

Ultimately the only logical solution seemed to be that she should join our SMSF. She’s become our third member and trustee director. We’ve had to organise the fund’s bank account so that all three of us sign cheques.

Extracting SG from recalcitrant employers

Since she started work her employer hasn’t been that flash at meeting their SG obligations. I’ve given her tips on how to quietly get that money out of them. I even asked our accountant to write to me asking where the employer contributions were given the fines that will apply if the contributions aren’t made on time. This solved part of the problem.

Her job roster is very flexible and if she pushes too hard she can be frozen out of future work. So hitting the employer hard carries the risk that she’ll lose her job which she can’t afford because the employment market for low skill workers is pretty poor.

To make matters worse her employer changed hands and the former owner still hasn’t paid anything.  We have to find the former owner and make contact with the ATO.

It’s a nasty conundrum for her and one that I think is fairly common.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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