Teen casual job - family SMSF or other super option?

My mid-teen is just about to start her first casual job. It's unlikely, especially during school term time, that she'll earn enough $$$ to attract any superannuation payments. Maybe, during school holidays, there may be the odd 'big week', during which super will be earned.

When considering where to have her employer contributions paid, I've been looking into a variety of retail/industry funds. Even the low fee funds (eg. $1.50/week admin) still charge performance fees etc. It's likely that any superannuation she actually earns during a financial year will be completely eaten up by the fund.

My husband and I have our SMSF, and are considering making her a member of this. That way, all the admin fees etc are actually absorbed by the whole fund, which we are happy to do at this early stage of her working life, where her income is so small and contributions are likely to be minimal. Then, when she is older and capable of making different decisions based on her own lifestyle choices etc, she can choose to roll her super (which isn't likely to be a hug amount, but better than $0) into another fund, if she wishes to.

I'd love to hear from other people - Have you done this? Pros? Cons? Have I missed something? Things I haven't considered?

 

Sounds like a good time for teen to learn about financial matters - get her to research a few big low-fee funds and discuss with her.

 

I understand that you want your daughter's super to grow and you are happy to cover the management fee if she joins your SMSF.

I believe that it will cost you more if she joins your SMSF. You better off having her own account managed by the fund manager. You may wish to give her some money cash and ask her to salary sacrifice exact amount into her super. I just a thought.

 

Have you issued or about to provide the PDS? What about insurance (TPD, etc)? Would she also be trustee, director if corporate? What about decisions on investments i.e. $250 can override $100,000?

 

None of the above (yet). I know I would need to do all of this - if we went down this path - but before getting bogged down in paperwork and admin, I wanted to see if it was worth considering actually doing it.

My initial thoughts were "not into the SMSF - get her into an industry fund", but I just wanted to hear from the wisdom of the collective brains trust on PC before deciding which way to go.

 

Our kids are in the same situation, massive balance of $60 - go down the path of a low fee industry fund like Host, CBus etc.

All members of SMSF will share the cost of running it, so it may not be cheaper.

IIRC Under 25s can opt out of insurance

 

Obviously it is up to the trustees of the SMSF but my gut feeling is to stick with your initial thoughts.

 

Thanks so much. Your input really helps.

 

Since "protecting your super legislation passed" I'm pretty sure expenses for funds of less than $6k are capped at 3% pa. so if balance is $100 max $3 can be charged in fees for the year and some of the weekly admin costs etc should get refunded for very small accounts.

Big step including your kids in SMSF, probably needs serious consideration of all aspects - they will need to also become a trustee.

Australian Super, Host Plus, Sunsuper, Unisuper are some good funds that come to mind for your teenager to investigate for their own account.

I would encourage the kids to use their super power of "long investment time frame" to pick an aggressive investment option and start a regular contribution habit, even if its only a tiny amount each month, don't forget to point out the government co-contribution they will receive for any extra they put in as it might be a bit of a motivator.

The power of compound and efficient tax structure for a young person is huge. If they make some savings in super they will take some valuable pretty much un-noticed steps in the right direction whilst they do what teenagers do with the rest....aint we all been there, do as I say, not as I did.

 

Thanks for such a great, well explained response. I was just about to start looking into the fee structure for accounts with a low balance, as I'd hate to see her contributions eaten away by fees.

Thankfully, she already understands the concept of long term investing, so I'll make sure she sees super through the same lens. And while she can't touch it for decades to come, I'm hoping she'll see the value in starting so young.

 

If the person is aged 18+ they have a right and expectation to be a trustee Director and be equally involved and that is a fundemental framework of the SMSF rules in s15A of SISA. Do you really want that ? She may also be required to guarantee any debt if the fund has one. She isnt just involved with her money but all fund investments and choices etc. Also when she meets Mr Right and he later leaves her expect your SMSF to get dragged into the family court orders. There is also the lesson in the Katz v Grossman case as to what happens when one child goes rogue with a smsf and rips of their siblings. It happens. And the court has it hands tied because of member choices when alive they thought were OK.

You may aslo misunderstand how low balance members have rules surrounding fees etc. You sound like you are advising her but dont actually know enough and arent suitably qualified to advise her on her membership and fund choices. . Its a breach of the Corporations Regs and why all new SMSF members must be given and understand a PDS.

One of the best things to teach her is financial independence. Teach her about low cost industry funds. Let her research and choose and then discuss why she made that choice. She will feel empowered she can make choices and self manage her own problem

 

Industry fund is best for her at this stage of the game.

Fun fact, you can have up to 6 members in an SMSF (previously 4). I just need 5 more and we can buy a child care center together

 

Thanks Paul - I wouldn't be advising her. I was just in the very early stages of considering options - whether to even consider the SMSF as an option for her - and if we ever did go down that path, everything would certainly all be done correctly, fully, and with the proper professional advice and support.

My original post was just to see if others thought it was even worth considering, and why (or why not). I've since received a lot of very useful information (your advice included) that reinforced my original perspective, which was to go down the industry super route . Thanks for your comments.

 

Been through this as well. Found at least one industry fund that has zero fees up to $1000 balance but pretty rubbish after that. In the end have helped my kids set up with low cost industry fund accounts and position their asset allocation for the long term from the beginning - that seemed to me to be the best approach.

With many funds charging $1.50 per week admin, they are going to be paying 3% p/a up to about $2600 down to 1% p/a though to $7800 balance. So the percentages aren't great but the absolute $s aren't material in the scheme of things. Education, habits, behaviour, savings trajectory and well positioned long term asset allocation are far more important.

We've got some "side deals" planned to encourage the kids to add their own voluntary contributions on a regular basis.

I debated if encouraging extra into super at such an early age was really a good idea. In the end the conclusion I came to is the availability of the First Home Super Saver Scheme provides some flexibility to access some of the funds if really desired in the future. The scheme isn't perfect, but good enough in my view.

Also note from July 2022 the government has proposed to remove the $450 monthly income threshold for SG contributions which will mean teenagers in casual jobs will start accumulating employer contributions (initially at 10.5%) from the first $1 earned, which in my view is long overdue. And they'll have the 15% tax charged on any employer contributions returned to by the ATO into their super account automatically at then end of the FY.

I hadn't considered the government co-contribution mentioned by @dunno above so will need to look into that with the kids to check eligibility criteria, but that's potentially a fantastic sweetener.

 

I suppose it is a good and easy way to boost a low balance for the kids.

 

Looking at the co-contribution

Yes this completely blows away any issue with fees. Although if I was the ATO I'd been chasing the funds for the admin fees!

Just need to make sure they complete a tax return even if on very low income. And that they make $1000 in voluntary contributions before June 30 to get the maximum $500 contribution from the ATO.

 

@ChrisP73

Google protecting your super legislation. Fees seem to be now capped at 3% p.a for balances under $6000

 

@dunno thanks, yes but as per my post above if you choose a fund wisely the 3% cap helps up to about $2600 only. In reality the 3% cap should really be a full refund of all fees for balances under $10,000, and then a 1% cap up to $100,000 if the government wants to get serious about fees in the super 'industry'. This would also accelerate the consolidation of smaller funds which don't have the required economy of scale to be cost effective.

 

I am not a member of my parents SMSF even though I could do so.

If a family member is going through divorce or bankruptcy and the super fund is linked to the extended family it can makes it very difficult. You would be amased at how stupid some divorce lawyers can be when it is in their best interest to get confused.

 

Son has started a full time job recently, he's gone with Spaceship Super as it fits with his interests