Nick Bruining Q+A: Want to put cash into a term deposit inside your super fund? How safe is your money?

Question

I am about to receive an inheritance of $170,000 and want to deposit this into my superannuation account with a view to retiring at the end of this financial year.

However, with all that’s going on in the world, I am concerned about investing it into my existing high-growth option.

My super fund also offers term deposits, which I assume are very safe. Are these covered by the government guarantee?

Answer

The Financial Claims Scheme was established more than a decade ago following the global financial crisis, and guarantees the first $250,000 of deposits in authorised deposit-taking institutions. The limit is applied per account holder, per institution.

ADIs include all banks, credit unions, online banks operating in Australia, and building societies. This means all deposits like this have an equal guarantee, so you can confidently invest in a smaller bank if the rate on offer is better than one of the larger banks.

In the case of your super fund, the structure of the fund will determine whether it is covered by the FCS. While you and other members of your fund are the beneficial owners of the assets of the fund, a superannuation fund is, in fact, a special type of trust.

It is operated by the trustees of your fund and, legally, the trust and trustees hold the assets on behalf of the fund members, including you.

Even though you might have a $170,000 term deposit in your super fund, that money is likely to be part of a pool of term deposits that the trustees have established with various banks on behalf of their members. The total value of all the term deposit accounts for a public offer super fund would run into the tens of millions.

The trustee, on that basis, is regarded as a single account holder, and while the $250,000-per-account-holder FCS rule applies, it applies to the total pool of millions, not to the individual accounts.

This is not the case with a self-managed super fund. With only one or two members, the benefits of the FCS could be applicable with comparatively smaller amounts invested in deposits via an SMSF arrangement.

Lastly, don’t judge any investment decision based on past performance. Remember, the underlying assets of your growth option are likely to include a substantial allocation to assets such as shares and real estate. Some of these assets have risen dramatically in value over the past few months, flowing through to some growth super options growing by as much as 15 per cent.

Because no one can say what will happen next, maintaining your exposure to the growth option now means you are exposing your fund to risk investments.

If your objective is to de-risk, you might want to seriously consider moving to a safer option such as capital stable or conservative. Whereas high-growth might have as much as 90 per cent of your money invested in “risky” assets, a conservative fund typically has about a 30 per cent exposure to shares and property.

Question

I currently employ a cleaner on a weekly basis for about five hours, paying them $250.

Last week, she told me I am legally required to pay superannuation for her.

I read recently that all employers must pay super for employees on any money earned. Is she correct?

Answer

No. There is a specific exemption under the superannuation guarantee legislation dealing with employment of “a domestic nature”, which would include cleaners and gardeners.

Unless your cleaner works 30 hours a week or more under this domestic arrangement, there is no obligation for you to pay superannuation.

If, however, the cleaner works for an employment agency and you engaged that organisation, the cleaner is entitled to super. But that obligation is the employment agency’s and not yours.

In that case, the cleaner is entitled to 12 per cent of the gross (before tax) income received.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association.