Legal reforms are welcome but starting early in life is the secret to accumulating retirement wealth.
The 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 highlighted 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 said an 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).
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