According to the Australian Taxation Office, around 3 million Australians held two or more super accounts as of June 2022.
You could be one of these 3 million Aussies if you’ve changed employers, carried out self-employed or contractor work at some time, or failed to keep your personal details up-to-date with your super fund.
If so, you could be paying multiple fees and charges, which can add up and reduce overall returns. And if you do get to manage multiple super accounts, you’ve probably experienced how time-consuming, confusing, and difficult it is to keep track of super balances especially if you have a large number of accounts.
In this article we’ll discuss the pros and cons of consolidating super funds into one account. Consolidating your super can help you better manage your retirement savings and align them with your financial goals.
Why People Have Multiple Super Funds
People may not be aware that they have more than one account for several reasons, including changes in employment, lack of awareness, and unintended consequences that lead to inactive accounts.
When individuals change jobs, their new employer may set up a new super fund for them, leading to the unintended creation of multiple superannuation accounts if they do not elect to use their existing super account.
Additionally, being self-employed or doing contractor work may require setting up other accounts to manage taxes and superannuation contributions.
However, having multiple super accounts could mean paying unnecessary fees and charges, which can reduce overall retirement income.
Lack of Awareness
Some people, especially young individuals, may not be fully informed about the implications of having multiple super accounts and the potential costs associated with them.
Aside from paying unnecessary fees and charges, having multiple accounts can lead to confusion and make it difficult to keep track of super balances.
Failing to nominate an existing account for compulsory super payments when starting a new job can lead to the unintended creation of multiple accounts, especially for those who change jobs frequently.
Eventually, these accounts become inactive when certain conditions are met, such as:
- No amount has been credited to the account within the last 16 months.
- The super balance is less than $6,000.
- The member has not met a prescribed condition of release.
Over time, inactive accounts can accumulate, leading to the potential negative impact on overall retirement income.
Challenges of Multiple Super Funds
Having multiple super funds can present several challenges for both individuals and the superannuation industry. From increased fees and paperwork to decision-making complexity, the presence of multiple super accounts can have a significant impact on long-term savings and financial planning.
Therefore, it is essential to understand and address these challenges to ensure the effective management of multiple supers.
Fees and Charges
Having multiple super funds can lead to increased fees and charges, ultimately affecting the net returns. A super fund typically charges various fees, including investment fees, administration fees, and insurance fees.
These fees can be periodic or one-off, based on a percentage of the account balance, or a flat fee. Research has shown that paying higher fees can significantly impact the final super balance, with the potential to reduce it by as much as 20%.
Imagine how many accounts you may have out there. What if you’re paying fees on more than one super fund? You may ultimately struggle to reach your retirement income goal as a consequence.
Thus, it is essential to carefully consider the fee structures of multiple superannuation funds and their impact on net returns to make informed decisions about fund management and consolidation.
Lost Track of Investments
Managing and keeping track of investments spread across different super funds can be a challenging task. This can lead to a more complex investment portfolio, making it difficult to monitor and optimise the performance of each investment.
Furthermore, it can lead to an increase in administrative work, such as tracking multiple sets of fees, receiving multiple statements, and managing multiple investment portfolios.
These challenges highlight the importance of carefully considering the implications of having investments in multiple super funds and the need for efficient portfolio management strategies.
Duplication of Insurance
The risk of paying for duplicate insurance coverage across multiple super funds can have several negative consequences on an individual’s financial situation. Some of these risks include reduced retirement income, overlap or lack of coverage, increased administrative work, potential for duplicate payouts, and higher likelihood of missing important fine print.
- Reduced retirement savings: Paying multiple insurance premiums can lead to a decrease in the amount of money available for retirement savings by reducing the overall balance.
- Overlap or lack of coverage: Having insurance through multiple funds may result in an overlap of coverage or, conversely, a lack of adequate coverage if some policies are not properly aligned. This can lead to potential gaps in coverage that may not be adequately addressed.
- Increased administrative work: Managing multiple insurance policies across different funds can create additional administrative work, such as tracking multiple sets of fees, receiving multiple statements, and managing multiple insurance premiums.
- Potential for duplicate payouts: In some cases, insurance policies may state that benefits like income protection cover may be reduced or not paid if the member has multiple policies. This can lead to a reduced payout in the event of a claim.
- Higher likelihood of missing important fine print: If an individual has multiple policies with different funds, they may be more likely to miss important coverage details or updates, such as changes in premium rates, coverage limits, or exclusions.
To mitigate these risks, it is essential to carefully review and consolidate insurance coverage across multiple super funds, ensuring that the individual has adequate coverage and is not unintentionally paying for duplicate insurance.
Benefits of Consolidating Super Funds
Consolidating super into one account can offer various benefits, such as simplifying the management of your super and reducing the associated fees. By bringing all your superannuation into a single account, you can save time, deal with less paperwork, and have a clearer view of your overall balance.
Additionally, consolidating your super into one account can lead to cost savings by paying only one set of fees. This process can also make it easier to keep track of and forecast your super and ensure that your retirement savings are working effectively for you.
Consolidating super into one account can lead to reduced fees and charges, potentially increasing the overall returns. Here are some ways in which this can happen:
- Single administration fee: By consolidating your supers into one super fund, you may be able to save money by only paying one administration fee instead of several. This can result in significant cost savings over time.
- Easier to track: Having all your superannuation in one account makes it easier to keep track of your investments and ensure that your retirement savings are working effectively for you.
- Lower fees through economies of scale: Larger super accounts may be entitled negotiate lower fees with other fund managers and service providers due to their scale. This can lead to reduced costs for the fund members, resulting in higher returns.
- Increased diversification: Consolidating super into one account could help you to simplify your asset mix, reduce transaction and asset management fees, and achieve a more diversified investment portfolio, which can potentially reduce risk and increase the overall net returns.
Managing a single super fund can streamline contributions, simplify tax reporting and performance monitoring, and improve administrative efficiency, ultimately leading to a more effective and efficient retirement planning strategy.
- Streamlined contributions: Consolidating super funds can simplify the process of managing money that employers contribute, and that you contribute personally as you only need to coordinate with one super fund administrator instead of multiple. This can save time and effort, ensuring that your employer contributions are properly tracked, and also making it easier to ensure that you remain within the annual contribution caps (see below).
- Simplified tax reporting: Having one fund can simplify the tax reporting process, as you only need to deal with one set of statements and compliance requirements. This can help ensure that you stay on top of your tax obligations and avoid potential penalties.
- Easier monitoring of performance: With all your superannuation investments in one account, it becomes easier to monitor the performance of your investments and make informed decisions about making adjustments to your portfolio.
- Improved administrative efficiency: Managing a single super fund can lead to cost savings and increased efficiency in administrative tasks, such as tracking fees, receiving statements, and managing insurance premiums.
Avoid Inactive Account Erosion
The erosion of inactive super accounts over time occurs when these accounts are subject to ongoing fees and charges, which can gradually deplete the account balances.
An account is considered inactive if no amount has been credited to it within the last 16 months, the super balance is less than $6,000, and the account holder has not met a prescribed condition of release.
To prevent further erosion, inactive super with low account balances are transferred to the Australian Taxation Office (ATO). The ATO will proactively consolidate super accounts into active super funds on behalf of the account holder, where possible.
Consolidating most super funds into one account is crucial to prevent the erosion of inactive accounts over time. By consolidating your super funds, you can:
- Avoid paying multiple fees: Multiple accounts can lead to higher fees, reducing your overall returns. Consolidating your super funds can help you save on fees and increase your retirement savings.
- Keep track of your super: Managing a single super fund makes it easier to monitor your investments and ensure that your retirement savings are working effectively for you.
- Maintain a diversified portfolio: Consolidating super funds can help you achieve a more diversified investment portfolio, which can potentially reduce risk and increase the overall returns.
Consolidating your super funds can offer various benefits, such as simplifying the management of your super and reducing the associated fees. By bringing all your superannuation into a single account, you can save time, minimise paperwork, and have a clearer view of your overall balance.
How to Consolidate Super Funds
Consolidating super funds can offer various benefits, such as simplifying the management of your super and reducing the associated fees. By bringing all your superannuation into a single account, you can save time, minimise paperwork, and have a clearer view of your overall balance. Additionally, consolidating your super can also make it easier to keep track of your super and ensure that your retirement savings are working effectively for you.
Check for Lost Super
To check for any lost or inactive superannuation accounts, you can use various methods, including online services and direct contact with the Australian Taxation Office (ATO). Here are the steps to follow:
- Check Online: You can use the ATO’s online services to keep track of your super, including accounts you may have forgotten or lost touch with. This can be done by logging into your MyGov account and linking it to the ATO. Then, follow the prompts to check if the ATO is holding any super for you.
- Contact the ATO: If you’re unable to check online for lost super, you can phone the ATO’s automated super search line on 13 28 65. Additionally, you can complete the PDF form “Searching for lost and unclaimed super” and post it to the ATO.
- Understand Inactive Low-Balance Super Accounts: Inactive low-balance super accounts are those with no employer or personal contributions within the last 16 months, a balance less than $6,000, and no prescribed condition of release met. These accounts are transferred to the ATO to prevent fee erosion, and the ATO may proactively consolidate them into active super funds.
Notify Current Employer
When informing your current employer about your chosen super fund for future employer contributions as well as personal contribution, it’s important to provide the necessary details to ensure a seamless process.
You can typically do this by completing a superannuation standard choice form, which includes your personal details, the chosen super fund’s information (such as the fund’s ABN and USI number), and your account details.
This form can be obtained from your super fund or the Australian Taxation Office (ATO). Once completed, you can submit the form to your employer.
Additionally, if you’re unsure about your choice, you can seek guidance from resources such as the Australian Securities and Investments Commission (ASIC) to make informed decisions about your super fund.
It’s essential to ensure that the information you provide is accurate and that you comply with the relevant regulations when communicating your choice of super fund to your employer.
Contact Superannuation Funds
To contact and initiate the consolidation process with your respective superannuation funds, you can follow these steps:
- Gather Account Details: Collect the necessary information for each of your super accounts, including the fund’s name, your member number, and the fund’s ABN or USI.
- Log In to Your Chosen Fund’s Website: Visit the website of the super fund you want to keep and log in to your account.
- Initiate the Rollover: Select the option for “rollover” or “consolidate” on your fund’s website and enter the details of the funds you want to roll over. Some funds may only require your Tax File Number to consolidate your money.
- Consider Lost Super: If you are asked whether you want your fund to look for lost super, it is a good idea to say yes. This can help you identify any additional super accounts you may have forgotten about.
- Complete the Consolidation Request: If you don’t have all the details for your other funds, you can still start the consolidation process. Your chosen fund will contact your other super funds to transfer your money. The process can take as quick as 10 to 15 minutes for online consolidation, depending on how many accounts you need to consolidate into a single fund.
- Before You Consolidate: It’s important to consider any potential impact on your benefits, such as insurance cover, and any fees or charges that may apply. Additionally, if you wish to claim a tax deduction for personal super contributions, you must lodge a notice of intent to claim a tax deduction with your original fund before consolidating your super into another fund.
By following these steps, you can effectively initiate the consolidation process with your respective superannuation funds, ultimately streamlining your super and saving on fees.
Things to Consider Before Consolidating
While consolidating can save on fees and paperwork, it’s important to ensure that you won’t lose any insurance cover that may be difficult to replace, particularly if you have a pre-existing medical condition or are aged 60 or over.
Checking your insurance coverage before consolidating can help you identify any potential gaps in coverage and ensure that you have adequate protection for your needs.
Additionally, aligning your chosen super fund’s investment strategy with your financial goals is essential for better decision-making, risk management, increased returns, long-term planning, and easier monitoring of your progress.
Reviewing Insurance Coverage
It is important to review your insurance coverage in existing super funds before consolidating to ensure that you do not lose any benefits.
Consolidating super funds can be a smart decision, as it can save you on fees, paperwork, and make it easier to manage your super. However, before consolidating, it is important to check that you will not leave yourself without wealth protection or in a more detrimental financial position.
Checking your insurance coverage before consolidating can help you identify any potential gaps in coverage and ensure that you have adequate protection for your needs.
It is wise to align your chosen super fund’s investment strategy with your financial goals to ensure that your superannuation investments are working effectively towards your financial objectives. This is crucial for several reasons:
- Better decision-making: Aligning your investments with your financial goals ensures that your superannuation is working effectively towards your desired outcomes. This can lead to better decision-making and a more focused investment strategy.
- Risk management: By understanding your financial goals and risk tolerance, you can choose investment options within your super fund that align with your risk profile. This can help you manage potential risks associated with market fluctuations and protect your investments from significant losses.
- Increased returns: A goals-based approach to investing can lead to higher returns on your investments, as your focus is on achieving specific financial objectives rather than simply chasing market performance. This approach can result in more effective use of your superannuation funds.
- Long-term planning: Aligning your investment strategy with your financial goals allows you to create a long-term plan for your retirement and other financial objectives. This can help you stay on track and make adjustments as needed to ensure your investments continue to work towards your goals.
- Easier monitoring: Having a clear investment strategy that aligns with your financial goals makes it easier to monitor your progress and track the performance of your superannuation investments. This can help you identify areas for improvement and make informed decisions about your investment options.
Seek Professional Advice
Seeking independent financial advice from a qualified financial adviser before making decisions related to your superannuation and insurance coverage is crucial for several reasons:
Personalised guidance: A financial adviser can provide tailored advice based on your individual financial goals, risk tolerance, and circumstances, helping you make informed decisions about your superannuation and insurance options.
In-depth knowledge: A financial adviser has extensive knowledge of the financial markets, economic trends, and investment options, allowing them to guide you through the best choices for your situation.
Objective opinion: Financial advisers can provide an objective viewpoint, free from personal biases or conflicts of interest, ensuring that you receive impartial advice.
Time and resource savings: Seeking superannuation advice from a financial adviser can save you time and effort by identifying the most suitable options and products for your needs, without the need to research and manage your investments yourself.
Risk management: Financial advisers can help you understand and manage the risks associated with different investment options, protecting your investments from significant losses.
Goal setting and planning: Financial advisers can help you set financial goals, develop a plan to achieve them, and offer advice on making the most of your income and saving for the future.
Consulting with a qualified financial adviser before making decisions related to your superannuation and insurance coverage can provide invaluable guidance and support, helping you achieve your financial goals and optimise your retirement savings.
Consolidating your super funds can lead to a more secure and streamlined retirement strategy. By bringing your other super accounts into your preferred super account, you can save on fees, paperwork, and have a clearer view of your overall balance.
Consolidating your super funds can also provide a better net investment performance, and you’ll have one point of contact for all your super fund administration, rather than dealing with a series of different administrators.
Before consolidating, it’s important to review your insurance coverage in existing super funds to ensure that you do not lose any benefits. Additionally, consider aligning your chosen super fund’s investment strategy with your financial goals to ensure that your superannuation investments are working effectively towards your desired outcomes.
Seeking advice from a financial adviser before making decisions related to your superannuation and insurance coverage is crucial, as it can provide personalised guidance, in-depth knowledge, and objective opinions, ultimately helping you achieve your financial goals and optimise your retirement savings.
Get Superwise About Your Superannuation with Central Coast Financial Planning Group
Superannuation is vital to your financial future in retirement as an Australian. Whatever stage you are right now in your career, learning about how you can make the most out of your long-term retirement savings plan is always a good practice.
At Central Coast Financial Planning Group, we can provide the specialist financial planning, expert knowledge and guidance you need to help you make the right financial decisions for your superannuation strategy so you can look forward to your future with confidence.
DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.