Tips and traps when it comes to consolidating your super
We're regularly urged to fold multiple super accounts into a single fund. And in general it's a good idea. But there are traps to avoid.
Having multiple super accounts can mean paying unnecessary fees and insurance premiums - two cash drains that will ultimately impact your overall retirement income.
On the whole, Australians are getting better at streamlining their super. These days, three out of four of us have just one super account. That still leaves four million people with two or more funds, and close to one in ten workers have 3-plus accounts.
The thing is, consolidating your super into a single account is easy via the myGov portal. Just log in to MyGov, or create an account. Link your account to the ATO, and select 'Super' to see all your super balances. Click on the 'Manage' option, and from here select 'Transfer super' to fold two or more accounts into a single balance.
Not only is the process easy, it should cost nothing. Exit fees for super were banned in 2019.
However, before you hit 'Transfer super' think about the following tips and traps.
TIP: Don't just roll your super into the fund with the biggest balance
It can seem like a no-brainer to transfer all your super into the account with the biggest balance.
But take a minute to research which of your funds has the strongest track record for returns plus low fees. One of your smaller balances could be the better performing fund.
TIP: Check what you're covered for
When you consolidate funds, you close unwanted super accounts. On the plus side that means saving on multiple insurance premiums. The catch is that you could miss out on valuable cover.
Not all funds offer default income protection cover - especially MySuper products. And the level of cover will likely vary between funds. Check the type of cover, and how much protection you have, with each fund before pulling the pin.
TRAP: Don't be caught short on insurance
Be very careful if you have a pre-existing health condition or you're aged 60-plus. Closing a super account could see you paying higher premiums for life insurance and total and permanent disability (TPD) cover - plus the need for a medical check - before you're covered with a new fund.
In the current environment, it's also worth looking into whether any of your funds offer insurance for COVID-19-related claims.
TRAP: Avoid a chain dragger at claim time
Some insurance companies have a better track record for paying claims than others. The life insurance claims comparison tool on the MoneySmart website shows which insurers are chain draggers at claim time.
Ask your funds which insurance companies they use. It can be one more factor that helps you decide which fund to stick with.
TIP: Check the investment options
Consolidating your super is a chance to have a real say in how your nest egg is invested. Take a look at the investment options offered by each of your super accounts. Some will offer more variety than others.
You may even discover opportunities to invest in line with your views around sustainability.
TIP: Think ahead
You won't always be in the accumulation phase of super.
The closer you are to retirement, the more important it is to look at the various options available through your fund to use your super as a means of generating regular income in retirement.
TIP: Look for freebies
There can be a lot more to your super than a place to grow retirement savings. Most large funds offer free general advice to members. Some, like Aware Super, hold regular free retirement planning seminars.
Others offer rewards programs - like SunSuper's Dream Rewards, which can let members pick up savings on anything from groceries to gym membership.
These sweeteners shouldn't be the main game that determines whether or not you close a fund. But if the perks matter to you personally, they can go into the mixing pot of issues to be considered when you're consolidating super.
TIP: Tell your employer
Your boss may be many things, but he or she is not a mind reader. If you decide to shut down the account your employer is currently paying super contributions into, be sure to let them know. Then provide details of the account that you'd like the boss's contributions to be paid to.
Remember, over the course of a working life, your views around which super fund is right for you may change. That's okay. The key is to do your research to make an informed decision, and always keep your employer posted if you're switching funds.
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