You have probably heard about the potential benefits of consolidating your superannuation accounts. The super industry and the government have done significant work to raise consumer awareness of the ‘potential harms’ from having multiple accounts – a big one being that members may be paying unnecessary fees from separate accounts. The government has also made it easier for people to consolidate their super simply using their myGov account.
And it appears the message is getting through. Over the past five years, the number of individuals who have consolidated their super has steadily increased according to the ATO. Its figures show that as at 30 June 2018, more than 10 million people, representing 64% of the population, had one super account only. That still leaves about six million people holding two or more accounts though.
The recent sharemarket volatility has resulted in many people taking a greater interest in their superannuation and how it has been performing. Some people may even be thinking about consolidating their funds so that they can reduce the fees they are paying or switching funds all together.
If this is something you have been considering there are a few factors you should take into account – particularly in times of extreme sharemarket volatility. Let’s take a look at some of the issues to think about.
Will you be ‘crystallising’ your losses?
It really comes down to timing. “Generally when you rollover your superannuation balance to another superannuation account both the balance you have in the account you are closing and your consolidated account will reflect what has been happening in investment markets. Your balance in the fund that you are transferring from is subject to the same market developments as the account you are transferring a balance to,” Association of Superannuation Funds of Australia (ASFA) CEO Dr Martin Fahy told Canstar. “You would realise losses, but equally lower asset prices would be reflected when you rollover to another fund.”
As Dr Fahy pointed out though, rollovers to another fund can take three days or even more, depending on the fund and the investment option you are in, and this time ‘out of the market’ can have an impact on your balance. “Investment markets can go up or down daily, and large movements in asset values during the period you are out of the market, is an issue for superannuation fund members to consider when contemplating consolidating accounts,” he said.
Should you wait until markets stabilise to consolidate funds?
There are pros and cons for each scenario. “Waiting until there is less volatility in market prices for investment would mean that you are less subject to unexpected movements in asset prices that would have either a beneficial or detrimental impact on your account balance,” explained Dr Fahy. “However, delaying consolidation would lead to paying higher administration fees in total for your super.”
If you’re comparing Superannuation funds, the comparison table below displays some of the products currently available on Canstar’s database for Australians aged 30-39 with a balance of up to $55,000, sorted by Star Rating (highest to lowest), followed by company name (alphabetical). Use Canstar’s superannuation comparison selector to view a wider range of super funds.
Fee, performance and asset allocation information shown in the table above have been determined according to the investment profile in the Canstar Superannuation Star Ratings methodology that matches the age group you selected.
Will any fees and charges apply to switch?
Although super funds are no longer allowed to charge exit fees, some funds charge a buy/sell margin. According to Dr Fahy this reflects the cost of closing out your investment option and can also vary with the investment option that you choose. “This impacts on the amount you rollover,” he added.
What does it mean for your insurance?
A critical factor to consider is what might happen to your insurance cover. “You should compare what your insurance cover would be in the consolidated account compared to what you had before. It might be difficult to get insurance cover for pre-existing conditions when you consolidate your super,” warned Dr Fahy.
Are there any situations when consolidating may not be a good idea?
You may want to think twice if you are close to retiring. “Near retirement may not necessarily be a good time to consolidate if you might qualify for a bonus payment when you move to the retirement phase. Many funds now provide an additional amount that reflects an allowance for capital gains tax accrued but not yet paid in the accumulation phase,” explained Dr Fahy.
He also again emphasised the importance of looking at your insurance cover, saying: “Consolidating can lead to a fund member losing insurance cover which is provided on favourable terms, or which covers a pre-existing condition.”
Consolidation has its advantages
The key advantages of consolidating super accounts include paying only one administration fee and one lot of insurance cover, said Dr Fahy. “Some insurance cover, such as income replacement insurance, may not be good value when it is attached to multiple accounts as there is a cap on the total amount of benefits that can be paid,” he pointed out.
Some people may also feel more in control of their super through having only one account, Dr Fahy added. “For instance, investment choice can be easier to manage when you have just one account,” he said.
Dr Fahy also offered these tips for people thinking about consolidating their super:
- Log into your MyGov account and see all of the accounts that you have. You also can easily consolidate your super with just a few clicks of your computer mouse through MyGov.
- Check out the details of each of the funds you are in and see which is best for you in terms of fees charged, services provided and investment performance.
- Have a look at the insurance cover that might be attached to each account and decide whether you want or need that insurance cover.
Main image source: Florence-Joseph McGinn (Shutterstock)