The four myths about consolidating your super


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We hear it bandied around all the time - if you have more than one super account, you should consolidate them into one.

While it can save you money on fees, it can also make you vulnerable in ways you didn't expect.

Check out these four myths on consolidating super.

myths about consolidating your super

Myth 1: You have insurance to fall back on

Income protection, life and disability insurances can be taken out through your super. However, most people are underinsured for their circumstances. For instance, 35% of Australians have no disability cover at all. If that includes you, how would you cover the household bills if you suddenly can't work because of injury or illness?

Consolidating super can make things worse. In most cases, when your fund is closed, those policies are automatically terminated. That's a problem for several reasons.

If you don't have a policy for the right amount of cover in your surviving fund, you're no longer covered.

Even if you do have cover, the surviving policy may be quite different in the protection it offers. You may be left worse off by inadvertently cancelling a superior policy.

Additionally, pre-existing health conditions are typically not covered under a new policy. So, while you may have been eligible to make a claim under a previous policy, that option is now gone.

Myth 2: New rules mean I'm better off

In 2019, the government changed the rules around superannuation, making insurances opt-in and mandating minimum balances and regular activity for a fund to stay open. Their goal was to reduce the fees and charges eroding our super.

The reality is I'm now seeing clients who are much worse off, simply because they weren't aware of these changes.

Some are discovering they have no insurance cover when they need to make a claim. Others are finding their super accounts or insurances have been wound up, because they lost their job due to COVID and therefore weren't getting regular employer contributions; they took time out of the workforce to raise kids or care for elderly parents; or their low balance didn't meet the minimum threshold.

(And to make things even more complicated, each fund has its own minimum requirement!)

Myth 3: Insurance only covers physical health

Wrong. People don't realise that, under most policies, mental health is covered under income protection and disability insurances.

It's an important distinction that is often overlooked. Removing the stress of lost income is an important part of recovering from any health issues, especially mental health ones.

Myth 4: Super only affects you at retirement

This must be the biggest misconception of all.

By retirement, you should have built enough wealth for what you need to live on. But when you're younger, have a big mortgage, are raising kids and have few assets, you are heavily dependent on your income to pay for everything.

If something happens to your ability to earn that income, what happens to your home? If you can't afford the mortgage, you could find yourself homeless. Hence the insurances attached to your super are most important during your working years.

Protect yourself

You simply don't know what you don't know, and it's not simple to DIY when it comes to super and insurance.

So, before you decide to consolidate your super, consider the broader ramifications and make sure you're protecting your most valuable asset: yourself.

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Helen Baker is an Australian financial adviser and founder of On Your Own Two Feet. She is the author of On Your Own Two Feet: Steady steps to women's financial independence and On Your Own Two Feet Divorce: Your survive and thrive financial guide. Helen holds a Bachelor of Commerce (Accounting) degree, a Master of Financial Planning, and a Master of Management (Innovation and Change).