INVESTING STUDENT SUPER
Better luck
in the lottery
T
he first experience of super
that many students have after
leaving school is bewildering.
Juggling different jobs with
different employers, they
steadily accumulate multiple small, dormant
accounts that are soon depleted by fees and
insurance premiums.
Anyone aged 18 and over who earns at least
$450 a month is entitled to the 9.5% super
guarantee (SG) contribution. However, many
young workers starting out are left with a
jaundiced view of super when their meagre
savings are consumed by fees (see “Battle to
get a refund”).
Typically, they don’t actively choose their
super fund, which means their SG is paid into
a default fund selected by their employer.
Consequently, every time they start a new
job another account is established.
The multiple-account problem was high-
lighted in last year’s Productivity Commission
report on superannuation, which described
it as “an unlucky lottery” for many workers,
with a third of accounts (or 10 million) being
unintended multiples.
The report put a figure on how much this
costs consumers: a staggering $2.6 billion goes
into the industry’s coffers every year. It saidan obvious flaw was that the default fund was
tied to the employer rather than the employee.
Following its report, and recommendations
of the financial services royal commission,
legislation was passed to address the problem.
From July 1, small, dormant accounts will be
given special protections in legislation called
Protecting Your Superannuation Package
(see breakout).
When it comes to super, everything old
is new again. Until 2013, accounts with bal-
ances under $1000 had a cap on fees. The
fund’s administration fee could not exceed
the investment return. The ban was dropped
with the introduction of MySuper in 2014.
Jason Andriessen, managing director
of CoreData Research, says the erosion
of account balances has a huge impact on
young people and is a stark example of super
funds behaving in a way that is detrimental
to their membership.
“That’s an unconscionable situation because
that wasted money is paid by members to super
funds and insurance companies – institutions
that are legally and morally required to act
in their customers’ best interests,” he says.
He says many young workers shrug it off
as a rip-off and treat the SG as just another
tax. “It’s a huge problem because these fundsand insurance companies have a fiduciary,
best-interest duty to prioritise their members
over themselves.
“It changes the way young people think
about super. It makes them cynical and less
engaged. And it’s happening at a time when
contributing to super could make a big dif-
ference to their lifetime wealth. So just when
they should be engaging with it, they are
having a poor experience.”
Andriessen says the multiple accounts are
an outcome of a super system designed 30
years ago that is no longer fit for purpose. “We
no longer have a 40-year career and then 30
years of putting our feet up. Work is far more
intermittent than that, and retirement isn’t
necessarily a time we stop working,” he says.Active interest is key
He says the July 1 changes will lead to the
consolidation of small, inactive accounts and
change the economics of many super funds.
“They are in the best interests of their younger
members and will lead to better outcomes for
them. It means super funds will need to find
growth in alternative ways.”
Andriessen advises students to take an active
interest in their super when they start with
a new employer and ensure their SG is paidSTORY VITA PALESTRANTLegal reforms are welcome but
starting early in life is the secret to
accumulating retirement wealth