It's never too early to start saving for retirement, and the good news for parents who want to give their children a head start is that, yes, it is possible to set up a superannuation fund for your children.
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Superannuation fund selection is the first step
Depending on your child's age, you might need to shop around to find a fund that allows you to set up accounts for children.
UniSuper, for example, only allows funds to be set up for people aged 15 and above.
Student Super, on the other hand, allows a fund to be set up at any age and charges no administration fees for balances under $1000.
The fund's Golden Goose Gifting program was specifically set up to make it easy for parents and grandparents to put money into a child's superannuation account.
Student Super Chief Executive Officer Andrew Moloney says in a video on the fund's website that Australians generally set up a super fund at about the age of 20, but by setting up a fund early, the benefits of compound interest can accrue for around two decades longer.
In order to set up and contribute into a superannuation fund for a child, it's necessary to set up a tax file number (TFN) for the child also.
Student Super's website says, "Once the child's TFN is added to their account, the parent or guardian will be able to access the details to make a contribution to the child's super account''.
The magic of compound interest
And the benefits are significant. $1000 contributed when a child is born, compounded over 20 years at 8%, turns into $4661, as calculated on the Moneysmart compound interest calculator.
If $1000 more is added each year, this figure grows to $50,423.
And this isn't counting the contribution that the Federal Government will make to your child's super account.
The government makes a co-contribution to superannuation for low-income earners of $500, as long as $1000 in non-concessional (after tax) contributions are made.
As the ATO says:
You don't need to apply for the super co-contribution. When you lodge your tax return, we will work out if you're eligible. If your super fund has your tax file number (TFN), we will pay it to your super account automatically.
If $1500 is compounded at 8% over 20 years, the result is $6991; if $1500 is contributed each year for 20 years, the result is a whopping $75,634.
That's quite the head start, and while super is usually tied up until retirement age, the personal contributions can be withdrawn and used to buy a home under the government's First Home Super Saver Scheme.
