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Multiple super accounts? You're likely losing money

Published 12 February 2018

Consolidating your super will increase your savings in the long-term, writes Alan Hartstein.

More than $17.5 billion of Australians’ money is currently unaccounted for, lost, or otherwise sitting in dormant accounts, according to the Australian Securities and Investments Commission’s MoneySmart. A large amount of this is held in superannuation funds, and some of it could be yours.

Consolidation checklist

1. Check if you have any dormant super accounts.

2. Decide which account you want to roll the others into by comparing the funds’ returns, investment options, their fees and charges and any exit fees.

3. Check your insurance cover.

4. Once you’ve selected the account you can consolidate your super via MyGov in just a few clicks, or the fund you are consolidating into can do this for you.

5. Organise for your employer to pay your super into your consolidated account.

The case for one super account

For many people, accumulated super savings will not only be their major source of income in retirement, but possibly their only income, so it’s vital you get your super in order as early as possible to maximise that investment. It might feel distant now, but when you’re in your 60s and retirement is right before you, that money will be very real.

In 2014, The Grattan Institute released a report titled Super Sting, in which it reported that Australians pay about $21 billion a year in administration and investment fees, many of which were excessive. Grattan followed this up with another review in 2015, which came to the conclusion there are too many accounts, too many funds, and too many of them incur high administrative costs.

“If these remaining excess costs are not removed, they will drain well over 5 per cent – or $40,000 – out of the average default account holder’s fund by retirement,” the institute concluded in its report.

So eliminating unnecessary super accounts is crucial to optimising your investments. One big problem is people’s ignorance and confusion about this. RetireInvest Hornsby financial adviser Mark Robinson says many people have no idea what consolidation even is, let alone why they should bother.

So let’s clarify: combining your multiple and often long-forgotten super accounts into one has a range of benefits. Not only does it help you to more easily keep track of your investments, but it will, in most cases, save you a large amount of money over the long period of time you accumulate superannuation savings, as you won’t pay multiple fees and insurance premiums.

“The perception is out there that it is cheaper to have one fund than several. This tends to be the case particularly where funds charge fixed as well as percentage-based fees. I think the main benefit is simply that it is easier to keep an eye on one or two funds than five or six. It results in less mail, emails to worry about reading or actioning, and a clearer view on how you’re travelling towards whatever goal you have set,” says Robinson.


Millennials are especially disengaged from super

A large portion of Millennials in particular seem disengaged with the subject of super and the whole concept of consolidating accounts, according to a March 2017 report by The Association of Superannuation Funds of Australia.

By failing to consolidate multiple super accounts, these young people especially risk eroding their balances unnecessarily by paying multiple fees and charges.

The report found:

  • young Australians tend to have more money in their super accounts than in the bank, yet 40 per cent have no idea what their super balance is and a further 16 per cent only have a vague idea
  • more than 30 per cent of those aged 18 to 25 have more than one super account and 10 per cent have three or more accounts; for those aged 26 to 30, nearly 20 per cent have three or more accounts
  • more than 60 per cent of young Australians have multiple super accounts because they haven’t consolidated them, while 30 per cent said they had trouble finding old accounts
  • $1000 invested today by a Millennial will deliver $4000 or more in today’s dollars at retirement.

Your four-step consolidation guide

1: The easiest place to start is to check where your dormant super accounts are. Once you sign-in to the MyGov website and link your account to the Australian Taxation Office, you should be able to see all of your funds in one place.

2. Decide which of your accounts you want to roll the others into. Robinson recommends focusing on funds that:

  • offer flexible and fixed insurance that does not expire if you don’t contribute
  • have a good range of investment options, factoring in risk and diversification
  • suit your desire to take a low cost or more active investing route.

“Gather together your various statements as they come in over July and August and either take them to an adviser to sort through, or make a basic spreadsheet listing what each fund is worth, how the money is currently invested, how fees are charged, and what active insurance lies within each,” suggests Robinson.

“Only then will you begin to feel in control and able to accurately gauge the potential benefits of consolidation, and make a decisions as to whether it is something you can do yourself or need help with.”

3. Once you’ve selected the account you want, you can consolidate all your super via MyGov in just a few clicks, or the fund you are consolidating with can do it for you, or at least guide you through the process. Robinson notes that some funds do carry exit costs which can be hefty on some of the very old funds.

4. Make sure you organise for your employer to pay your super into your consolidated account (PDF 164kB). That way you’re not just creating another account you may lose track of in the future.

Ready to consolidate?

First, Robinson says to consider that people often overlook insurance in their superannuation and lose it when they switch to one account. You’ll want to make sure you have the insurance you want in the super fund you consolidate into.

There’s two other considerations. Those drawing a pension from their super may find cash flow flexibility across different market conditions in having one fund investing in defensive assets and another in growth assets. Also, “consolidating a tax-free fund with a taxable fund can lead to a loss of flexibility in estate planning in retirement” warns Robinson.

But for most of, the advantages of one super account are clear.

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