Ask Paul: Our young son lost half his super in fees and insurance
Q: Our 22-year-old son attends university and has a part-time casual teacher's aide job with a school during term time. He doesn't get paid much and his super contributions are paid to the fund that the school promotes.
An account summary reveals that at February 5, 2016 he paid $300.92 into the super fund; net investment earnings were $4.78 and funds taken out (taxes, fees and premiums) were $154.52 - leaving him with the grand total of $151.18!
I notice that a deduction of $37.53 was in respect of death/total and permanent disability insurance (which has now been cancelled).
Given that he is left with a pittance after the deduction of fees (and wanting to encourage him to start seriously saving for superannuation), could you suggest any other fund or way he can optimise his contributions.
He has two years remaining at university. We could help financially if this would bring about a better outcome for him. - Anna and Graham
Q: Anna and Graham, you have highlighted one of my main grievances with our compulsory super system: insurance for those who don't need it.
I need to start by saying that most of us just don't give insurance enough thought and we are generally underinsured or not insured at all.
But this is not a good reason to give young Aussies, often in low-paid part-time work, a financial flogging through insurance that most just don't need. In time to come I have no doubt he will need insurance, in particular death and income protection, but I fully understand why he has cancelled it for now.
This issue, though, is the super system, not the funds. In terms of the $4.78 in investment earnings, the period from July 1, 2015 to February 5, 2016 is as about as bad a period as you could pick.
Growth or balanced-style funds, where most members' money is invested, hold a lot of shares and in this period the market fell from around 5500 to 4800, so I am a bit surprised he made a profit.
What I would do is take a look at the earnings up to June 30 this year - the fund should have done well.
Do compare it with other major funds; you may find the school's recommended fund is doing well. If not, I agree with changing to another low-cost, good-performing fund.