Question 1: My 18-year-old son is working casually (less than 20 hours a week), as he attends university. What financial advice would you offer in relation to building up savings and super for someone starting out in his working life?

I am assuming your son has only limited expenses. But what tends to happen is that, as soon as someone starts to earn an income, they suddenly start to spend more.

In other words, once they have a ‘disposable income’, they find ways to dispose of it.

Therefore, setting up a regular savings plan will not only help in the short term, but hopefully instil some good habits that will stick for the long term.

Of course, the aim should not be to save all of his money.

He should still have the opportunity to spend and enjoy some of it – provided he allocates at least some money towards future goals, like saving for a car, a holiday and possibly even a house.

He should always set aside funds for a rainy day or emergency fund.

Starting out working for the first time – assuming he is still living at home – is one of the few opportunities that young people have to ‘get ahead’ financially, because as we get older, we tend to have a lot more expenses and financial commitments.

This is not easy to recognise, however, so hopefully you can discuss this with him.

I would generally not recommend he make any voluntary contributions to super just yet, given he is only 18, as he will not be able to access these funds until at least age 60, or perhaps even later, and he will have some more immediate financial goals.

I would recommend he take an interest in super, though, as being engaged can lead to better returns and retirement outcomes.

Currently, if you are 18 years of age or over, and earn $450 or more per month, your employer is legally required to pay 10 per cent of your regular salary into your nominated superannuation account on top of your take-home pay.

In this year’s federal budget, the government announced that the 10 per cent super guarantee payment would be paid regardless of how much someone earns in a month – but this change was proposed to commence from July 1, 2022 and has not yet been legislated.

You should encourage your son to compare super funds, investment options, fees and performance. A good place to start would be the new YourFuture comparison tool.

Moneysmart is another great resource and has tips and tools on how to choose and operate a bank account, and on how to set up a savings plan and start budgeting.

It can also provide further education on investing in managed funds and other investments should that be of interest.

Question 2: Selling our home owned for less than four years and intend to buy again in approximately 12 months. We are both over 70 (70 & 72), and receive part aged pensions. I understand that Centrelink allows 12 months to repurchase but will deem the sale proceeds 2.25 per cent.

Can I put the proceeds from the house sale ($900,000 approximately) into my or both super accounts for the 12 months, as that is the only way to get a return greater than the deeming rate?

I currently satisfy the Work Test. My wife does not. It seems unfair that super is excluded as an investment option. Thanks

You are correct in that if you are a home owner and you sell your home and if there is an intention to buy another principal home within 12 months, then the portion of the sale proceeds intended to be used to buy the new home will not be counted as an asset by Centrelink until the earlier of:

• When you purchase your home
• 12 months after you do so (this can be extended by Centrelink in some circumstances).

As an example, if you sell your home for $900,000, and intend to purchase a new home for $800,000, then the $800,000 would not be included in the asset test but the $100,000 would. And you need to ensure you notify Centrelink within 14 days of the sale.

During this period, you will still be classified as a home owner.

Also, as you have indicated, if funds are placed into a financial asset, such as a bank account, shares, managed funds or superannuation, they will still be counted under the income test using the deeming provisions.

For a pensioner couple, this means the first $89,000 is assumed to earn 0.25 per cent per annum and the remainder is assumed to earn 2.25 per cent per annum.

As the proceeds are excluded from the asset test but included in the income test, a reasonably common occurrence is that some age pensioners who previously either received the full age pension, or who were part age pensioners due to the asset test, may now fall under the income test instead.

However, it would be based on your overall situation, and so you should seek clarification from Centrelink.

In terms of where to invest the funds, there are a couple of important principles you need to bear in mind.

Firstly, superannuation is just a structure to hold investments.

It is not an investment itself. As an example, you could invest funds via a ‘balanced’ managed fund in your own name, which may hold very similar investments to a ‘balanced’ investment option within superannuation.

Next to consider is your investment time frame. If it is 12 months or less, then I would generally recommend a term deposit, high-yielding savings account or an online account that pays bonus interest.

You can place the funds into superannuation. But the underlying investments, if say in a balanced fund, are partly invested in shares, property and other assets that are subject to short-term fluctuations in value.

As such, most of these funds recommend a time frame of five to seven years to ensure you ride out these short-term fluctuations.

So, if you do invest this way, you are taking a big gamble on what markets will do in the short term.

And as I said, that is not something I would recommend.

There is a case for the government to review the current deeming rates, given that official interest rates rates are so low.

But in the interim, and just for short-term investing, you may have to settle for a return below that of the deeming rates.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives. 

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