How to avoid a costly super switching mistake

It could start with an advertisement on social media or an unexpected phone call.

Next thing you know you're being told by a salesperson that your superannuation is underachieving and that you could be making better returns elsewhere.

Before you know it, you've been convinced to transfer your retirement savings into a high-risk fund - a fund that fails to deliver on its promised returns or collapses entirely.

That is the experience too many Australians with super have been subjected to in recent years, minister for financial services Daniel Mulino explained in a Press Club speech last week.

"These events are not the result of a single failure; they reflect a chain of conduct spanning lead generation, financial advice, managed investment schemes involving conflicts of interest, poor governance and, in some cases, allegations of serious misconduct and fraud."

But changes are afoot to address these issues and better protect Australians and their super.

The super losses that sparked reform

Close to 11,000 Australians with combined super balances of around $1.1 billion are believed to have been impacted by the collapse of the Shield and First Guardian funds in 2024.

Many of those lost access to some, or all, of their retirement savings overnight when the funds suspended withdrawals.

These are the clearest examples of the damaging lead-generation, advice and management practices described by Mulino.

They're also a major driver behind the federal government's push to reform parts of the super system.

But as Mulino explained in his recent speech, the practices that many Shield and First Guardian customers were targeted with are still occurring.

"Reports of similar lead-generation activity targeting Australians continue to emerge. Our task is, therefore, not only to respond to past failures but to reduce the risk of future ones.

"That requires a comprehensive response that recognises how these business models operate across the financial system, and that will remain effective even as bad actors adapt."

What the new rules aim to do

There are three broad pillars to the government's reforms: preventing harm to consumers, improving access to safe financial advice and updating the Compensation Scheme of Last Resort (SCLR).

Within those, a number of proposals are directly targeted at weaknesses in the super system that led to thousands of people being caught out in the First Guardian and Shield collapses.

• Unlicenced communication ban: Unlicenced persons will no longer be able to cold call or message consumers about their super, with a few exemptions (e.g. employers)
• Tougher anti-hawking rules: Financial advisors will be limited to contacting existing clients, though carve outs for contact with family members and third parties are likely
• Steeper trustee penalties: Trustees who breach their obligations will face much higher civil penalties
• Data harvesting restrictions: The government is also examining whether tougher rules are needed on businesses that collect and sell consumer data to generate financial leads

These proposals still need to be put before parliament to be legislated though, so it's currently unknown if and when they will come into effect.

Calls for more action on social media advertising

While largely supportive of the reforms, advocacy groups in the superannuation space have urged the government to go further in some areas.

Xavier O'Halloran, chief executive of Super Consumers Australia, says that he would like to see social media firms shoulder more responsibility for harmful advertisements.

"People get pulled into bad investments online, not just over the phone. Social media platforms need to pull the ad down, not leave people to check the fine print themselves."

Meanwhile, the Super Members Council is advocating for a total ban on lead generators (not just unlicenced ones), noting that some involved in the Shield and First Guardian cases were licensed.

"Stronger controls are clearly needed when you look at how people exploited loopholes in the anti-hawking laws," says Misha Schubert, chief executive of the Super Members Council.

"We need to end clickbait advertising, engineered sales funnels that harvest people's contact details, and call centres that lure Australians into high-risk arrangements."

Got a cold call about your super? Here's what to do

Given that Australians are still being targeted by dubious actors pushing them to switch funds and that the proposed reforms are not yet in place, it makes sense for people to keep up their guard.

The question, what's the best way to respond to an unwanted cold call or a social media message related to switching your superannuation? ASIC's Moneysmart has a few tips:

1. Ignore the call or message: Don't feel obliged to engage with unsolicited communication. You can always ignore message or hang up a call. If you're not sure, it pays to be cautious.
2. Block the contact: If you're not interested, consider blocking the number or the person who reached out. You can also register your phone number on the Do Not Call Register to avoid other people contacting you in the future.
3. Contact your fund: If you have given out any personal information related to your super, get in touch with your super fund and get them to place a block on withdrawals.
4. Bring it up with a trusted source: If you're feeling unsure about contact you've received about your super or any actions you've made following, consider talking about it with a family member or friend to get their input.
5. Report it to ASIC: Should you wish to, you can report any misconduct relating to unlicenced financial advice, harmful financial products or dodgy investment schemes to ASIC.

It's worth noting that while making a report to ASIC can help the regulator identity widespread issues in the financial sector, ASIC won't be able to intervene on your behalf or help with a financial dispute.

What you can do is lodge a complaint with the Australian Financial Complaints Authority (AFCA).

AFCA can help meditate and resolve financial complaints related to investments, financial advice and superannuation (among other areas) for both consumers and businesses.

Get stories like this in our newsletters.