Consolidating your super could save a fortune over the long-term. Alan Hartstein outlines a five-step plan.
More than $1 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.
For many people, accumulated super savings will not only be their major source of income in retirement, but possibly their only one, so it’s vital you get your super in order as early as possible to maximise that investment.
In 2014, The Grattan Institute released a report titled Super Sting, which found 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.”
Consolidating your multiple and often long-forgotten super accounts into one fund has a range of benefits. Not only does it help you to easily keep track of your investment but it will, in most cases, save you a large amount of money over the term of your super’s life.
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.
Multiple accounts can cost you dearly over time,” says Mark Robinson, a financial adviser at RetireInvest in Sydney. “Each account will typically have a fixed administration charge of at least $100 a year. The more accounts you have, the more fees you will pay. As well, with each account there could be associated insurance cover, with deduction of premiums of $200 or more per account.”
Apart from the obvious savings, Robinson believes the main benefit in having only one super account is the simplicity of managing one fund as opposed to five or six. “It means less mail, emails to read and action, and a clearer view on how your super is tracking.”
Your five-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:
- each fund’s annual returns for the past five years
- how they compare to industry benchmarks
- what their fees and charges structure is
- whether there are exit fees for leaving.
“Gather statements as they come in at the end of the financial year and get a financial planner to run their eyes over them for you,” Robinson advises. “Alternatively, you could make a basic spreadsheet listing all of the aspects of the fund important to you. That will help you gauge the benefits of consolidation, and whether it is something you can do yourself or you need help with.”
3. You should always ensure that you have the insurance cover you need. Many of us hold much of our insurance within super, so a good starting point is a fund that offers flexible and fixed insurance that doesn’t expire if you stop making contributions.
4. Once you’ve decided on your rollover fund, you can consolidate all your funds via the MyGov website yourself or the fund you are consolidating with can do it for you, or at least guide you through the process. For example, ANZ Smart Choice Super members can search for other super accounts while logged in to ANZ internet banking. Once you’ve logged in, you can see your other accounts, approximate balances and any insurance attached to those accounts.
5. Make sure you organise for your employer to pay your super into your consolidated account. That way you’re not just creating another account you may lose track of in the future.