High Entry Fees Nastiest Thorn In The Super Rose
Sun Herald
Sunday March 29, 1998
* IN "Beware of rosy super forecasts" (The Sun-Herald, February 8) J F of Bondi complained about a Mercantile Mutual superannuation plan. As the agent who sold this policy, I would like to make the following points: (1) This is an employer-sponsored superannuation fund enabling the client (also the employer) to claim the contributions as a full tax deduction. (2) Contributions are therefore taxed at 15pc and, given company tax is 36pc, the annual tax saving using super is 21pc of the annual contribution of $21,000, or $4,410pa. (3) The policy has no early termination charges and, subject to normal superannuation guidelines, your full account balance is available at any time without penalty. (4) There is no contractual requirement to continue contributions. The funds remain invested in the money market cash option. B R, Crows Nest
THANK YOU for that information. It would have helped more if you had covered the fees payable and explained the differing returns on the investment options.
Details of Mercantile Mutual's employer-sponsored super fund can be found in their information brochure and from the investor services department on 13 36 65.
The fund offers four separate investment options: managed growth, capital stable, capital guaranteed and money market funds. In the past 12 months, these funds have returned, after fees, 16.75pc, 8.7pc, 10.35pc and 3.49pc respectively after tax of 15pc on income earned.
The super fund has fees of up to 6pc on entry (rebateable by the agent), an annual administration fee of $49 and annual investment fees of 1.5pc for managed growth and capital stable funds, 1.95pc for capital guaranteed and 1.15pc for the money market.
Reader J F was unhappy that he had deposited $94,500 over 4.5 years which, by October 1997, was worth $89,858.
If he is paying 15pc tax and then 6pc entry fee on the balance, he is ending up with a contribution of around $16,800pa and has therefore really deposited $75,505 over 4 years, which implies a growth rate of some 4pc a year.
It therefore looks as though he has placed his money in the money market fund and it is clearly not worth paying a 6pc entry fee to earn 4pc.
J F should consider switching into the managed growth equity fund, given that I expect our share market to climb strongly over the next few months, or switch to a super fund that charges no entry fee for cash-based investments.
* DO you want a question answered in this column? Send details to Personal Investment, The Sun-Herald, GPO Box 506, Sydney, NSW 2001. Advice given may not apply in all cases.
* HELP LINES: ?bf Pensions: 13 24 68. Income tax: 13 28 61. Banking Ombudsman: 1800 337 444.
© 1998 Sun Herald
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