Switching super? Watch out for these red flags

More than 11,000 Australians lost over $1 billion after switching their retirement savings into collapsed investment schemes. Here's how to avoid costly mistakes, scams and poor super decisions.

The risks of switching your super out of a highly regulated super fund were highlighted this year when it became apparent that more than 11,000 people had lost more than $1 billion in retirement savings in two managed investment schemes, Shield and First Guardian, when they collapsed.

Members were persuaded to switch out of their super funds with promises of high returns after responding to social media ads offering free super health checks.

The 'lead generators' then sold their contact details to third parties, such as financial advisers, who convinced them to switch to those schemes.

A recent national survey conducted by Super Consumers Australia shows that while engagement in super is rising, confidence is not: 70% of Australians check their super but only 50% feel confident making decisions about it.

Too many super fund members are left to work things out on their own when it comes to making decisions about their super - and the stakes are high.

A shadow shop undertaken by Super Consumers on super fund call centres came with staggering results. It recently tested customer service across super fund call centres and found them badly wanting.

The consumer organisation is now calling for mandatory customer services standards after its study of 20 major super funds call centres gave the industry a failing grade.

"People don't just need a healthy super balance to have a dignified retirement. They need to know their fund will pick up the phone when they're grieving, need to access their money or ask a simple question, and help them," says Super Consumer's CEO, Xavier O'Halloran.

Our $4.5 trillion super system is widely admired around the world. It has invaluable consumer protection but gaps, that need urgent addressing, remain, especially for those in retirement. 

The benefits of oversight 

Many people fail to choose an investment product when they join a super fund and consequently land up in its default option, known as MySuper.

Thanks to government oversight, it is a simple, low-cost, easy-to-compare option. Its features and investment returns are displayed on each fund's 'dashboard'.

MySuper funds are either a diversified balanced option or a lifecycle option.

Importantly, all MySuper products are subject to an annual performance test conducted by the Australian Prudential Regulation Authority.

Funds that fail the test must inform their members.

If it happens repeatedly, they must close the option to new members.

This has weeded out underperforming funds and forced fees down.

And consumers can easily check to see whether they are in a top performing MySuper product by using the ATO's MySuper comparison tool. It ranks MySuper products by performance and fees.

These measures have provided consumers with solid long-term returns.

"The Australian superannuation system is admired around the world because it is mostly designed to deliver good outcomes regardless of your level of knowledge or engagement with it," says O'Halloran.

"People are defaulted into investment options that are tested to make sure they're delivering good returns.

"People who are working and invested in a MySuper product would have seen their investments grow by 7% to 8% every year on average over the past decade. That is a positive outcome, which will see people more financially secure in retirement."

Retirees left out in the cold 

However, O'Halloran says there are gaps in the safeguards when it comes to people moving into pension phase.

A fund member can move from an accumulation product into an almost identical retirement product and lose the protection of the performance test.

"All these protections to ensure good outcomes disappear when people hit retirement age. There is no independent performance test or comparison tool and no basic products or pathways to help people manage their super in retirement.

"Our analysis found that a typical person could be up $205,000 worse off in retirement if they are stuck in one of the worst performing investments. But right now, there are no protections to drive funds to be better or to even warn people in poorly performing investments."

He says 74% of Australians support extending the performance test to retirement products, and an even larger 84% call for greater transparency so retirees can compare how their fund performs (Securing Australia's Retirement report, 2025). This leaves consumers vulnerable at a critical point.

Social media's role in switching

O'Halloran says social media increases the risk of harm because it lets operators reach huge numbers of people cheaply and quickly.

"This playbook is directly linked to the collapse of the Shield and First Guardian Master Funds.

"Lead generators often use social media ads, usually framed as free super health checks, to harvest personal details.

"They can't legally sell a product themselves, so they hand the 'warmed up' lead to a licensed adviser, sidestepping the anti-hawking rules meant to prevent cold-call selling.

"These pitches routinely promise life-changing returns with no apparent risk, then leave the person facing steep fees for advice that is not suitable for them."

O'Halloran says ASIC's evidence to Parliament in May this year put a number on the scale of the problem: more than $100 million spent by First Guardian and related funds on lead generators.

"This is money ultimately funded by the retirement savings being funnelled through them."

What to do before switching 

Compare products first, he says. "For people who are still working, the YourSuper tool compares investment options by fees and performance.

It's much harder when it comes to retirement investment options.

"People planning to retire should first figure out how much they need to cover living expenses once they retire and then, whether their super and other sources, like the age pension, will provide enough income to cover those expenses."

He also recommends the Moneysmart website to take the hard work out of these calculations.

"Now you can start to optimise by finding a fund with a long track record of good returns and low fees.

"Some super funds also offer products that help deliver you a stable income, so you don't need to worry as much about what is happening on the sharemarket when you're thinking about what you can buy at the supermarket."

Avoid the shonks 

"There are unscrupulous people looking to take advantage of people who are not sure what to do with their super. Here are tips to avoid them:

• Treat any unsolicited call or 'free super check' ad, especially on social media, with scepticism. Genuine advisers don't typically need to fish for clients this way.
• High-pressure, time-limited offers, and promises of guaranteed high returns or 'no downside' are red flags regardless of how professional the pitch sounds.
• Check credentials on the financial advisers register before handing over personal details or signing anything.
• Ask upfront about switching costs.
• If you feel uncomfortable at any point, just hang up!"

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