Is now a good time to consolidate your super or should you wait until markets stabilise?
Thinking about consolidating your super? We take a look at the potential risks of moving your super into another fund when markets are volatile.
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, the Association of Superannuation Funds of Australia (ASFA) CEO Dr Martin Fahy told Canstar.
“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,” he said.
“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.”
Compare Superannuation with Canstar
The table below displays some of the superannuation funds currently available on Canstar’s database for Australians aged 30 to 39 with a super balance of up to $55,000. The results shown are sorted by Star Rating (highest to lowest) and then by 5 year return (highest to lowest). Performance figures shown reflect net investment performance, i.e. net of investment tax, investment management fees and the applicable administration fees based on an account balance of $50,000. To learn more about performance information, click here. Consider the Target Market Determination (TMD) before making a purchase decision. Contact the product issuer directly for a copy of the TMD. Use Canstar’s superannuation comparison selector to view a wider range of super funds. Canstar may earn a fee for referrals.
- Performance, fee and other information displayed in the table has been updated from time to time since the rating date and may not reflect the products as rated.
- The performance and fee information shown in the table is for the investment option used by Canstar in rating of the superannuation product.
- Performance information shown is for the historical periods up to 31/01/2024 and investment options noted in the table information.
- Performance figures shown reflect net investment performance, i.e. net of investment tax, investment management fees and the applicable administration fees based on an account balance of $50,000. To learn more about performance information, click here.
- Performance data may not be available for some products. This is indicated in the tables by a note referring the user to the product provider, or by no performance information being shown.
- Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise.
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Performance and Investment Allocation Differences
- 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.
- Some providers use different age groups for their investment profiles which may result in you being offered or being eligible for a different product to what is displayed in the table. See here for more details.
- Australian Retirement Trust Super Savings’ allocation of funds for investors aged 55-99 differ from Canstar’s methodology – see details here.
- The Australian Retirement Trust Super Savings (formerly Sunsuper for Life) product may appear in the table multiple times. While you will not be offered any single investment option, this is to take into account the different combinations of investment options Australian Retirement Trust may apply to your account based on your age. For more detail in relation to the Australian Retirement Trust (formerly SunSuper for Life) product please refer to the PDS issued by Australian Retirement Trust for this product.
- Investment profiles applied initially may change over time in line with an investor’s age. See the provider’s Product Disclosure Statement and TMD and in particular applicable age groups for more information about how providers determine their investment profiles.
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.com
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This article was reviewed by our Editorial Campaigns Manager Maria Bekiaris before it was updated, as part of our fact-checking process.
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