Ask Paul: Why isn't it easier to set up a super fund for a child?

Dear Paul,

With people living longer and putting increased pressure on the age pension, why would our government not be inclined to encourage parents by various means to set up superannuation accounts for their children from birth?

We know compound interest is our friend, so rather than buying an investment property for the kids to inherit down the track, which many people can't afford anyway, would not putting, say, $15,000 into a super fund under the child's name be a better plan? 

If we use a compound interest calculator (about 7.5%), by the time the child is 60 they would have super of about $1 million, without any work contributions of their own, resulting in their not needing to draw on the government pension.

In turn, this benefits the government financially and gives families more disposable income. - David

You'll get no argument from me, David. Compound interest, as you well know, is one of the few truths about money.

With four young grandchildren, my wife, Vicki, and I are not only interested in the broader benefits to our community of helping kids but also at a personal level.

Right now, it is not simple to set up a super account for a child, due to 'contractual capacity' and a lack of an employment contract.

If a fund will allow us to make contributions for a child, anyone other than the child or employer would be taxed at 15% upon entry to the fund.

Here, your point is right. The government could fix this and even offer incentives. But you know, even if this was the case, I don't think I'd use super for our grandkids. They won't access it until retirement.

I appreciate this may not be a bad thing, but who knows what super will look like in 70 years or so.

So, we prefer to do what my parents did for me and my sister - that is, to invest on a regular basis in shares.

For me, at about age 25, these small annual amounts had turned into a handy amount of money that really helped me and Vicki with a small deposit on our first home.

It was also a big help with the $20,000 I needed to start a business.

We're on the same page here. I think government incentives to help parents and grandparents get started with investing for kids is a good idea, but I think we would be wise to allow a choice between super, where funds cannot be accessed until retirement, and share-type investments outside super, which provide flexibility.

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