There might be some advantage to multiple super accounts but your fees can easily eclipse any benefits, writes Neal Vaughan.
Superannuation fees cost Australians more than $20 billion a year according to a Grattan Institute 2014 study – a figure that could be slashed if everyone consolidated their super as the Australian Taxation Office urges us to.
So what do multiple super accounts cost you and is there any reason to not consolidate your accounts?
While everyone's situation is different, the Grattan Institute study, Super sting: how to stop Australians paying too much for superannuation, outlines broad potential for big savings by account holders.
The study estimates the average 30-year-old today will potentially have $1 million in super if they retire at 70 based on current average contributions and inflation predictions. Sounds good. But if the same 30-year-old pays fees of 1.5 per cent each year they could lose up to $300,000 of that potential super as the fees eat up investment growth.
The same study shows that a 0.5 per cent reduction in those fees (from 1.5 per cent to 1 per cent a year) would cut those losses by $90,000. That’s a big sum of money from trimming back the overall charges on your super. And the easiest way to do this is to consolidate the number of super accounts you have.
Gordon and Gray Personal Wealth Advisers representative Chris Kourmpatsos suggests anyone with multiple super accounts examine what each costs them in both percentage-based fees and fixed charges.
"Different funds charge different percentages of the overall balance, switching everything into the lower-fee fund makes a big difference. Also, most funds have fixed admin fees – they look small, sometimes around $80 a year, but over time they really hurt your returns."
The Australian Prudential and Regulation Authority estimates the median fees on a typical low-cost superannuation account are $532 a year, while the Grattan Institute study found the average super customer pays $1300 a year.
"With multiple super accounts you can double or even triple average fee figures, and over time those fees will cut into retirement money. The younger you are, the more important it is to reduce fees now," says Kourmpatsos.
Despite a major government and ATO push for consumers to consolidate super it's still common for people to have multiple super accounts. Each incurring its own set of charges. The ATO says more than 40 per cent of Australians have multiple accounts.
If you do consolidate you can use the Australian Securities and Investments Commission’s online MoneySmart Superannuation calculator to help assess your funds and fees. It can provide you with a graphic comparison of different fee levels over the long term.
You can also see the effect of letting a balance sit in an account without additional contributions but still paying fees.
For example, a balance of $20,000 left for 30 years and charged a median estimate of $553 each year in fees, will, allowing for inflation, incur $23,607 in charges with a final balance of $5,121. Hardly the recipe for a comfortable retirement.
The ATO's figures for the end of 2014 showed a massive $8 billion in super was sitting in accounts that have not received a contribution in five years or more.
ANZ head of super product development and platform strategy Patrick Clarke says it's easy for people to lose track of their superannuation’s financial performance. He quotes a study of someone with 17 super accounts, saying "it’s common for people to have six or seven accounts, you lose track of fees, so it’s important to consolidate to get back in control".
As ATO assistant commissioner John Shepherd says: "If you’ve tried to combine your accounts before and found it difficult, give it another go. We have simplified the process ."
But consolidating accounts, while usually best, isn't always the right move.
"I usually recommend people consolidate funds for easier retirement planning but there may be reasons for staying with a fund that outweigh the extra fees," says Kourmpatsos.
He says a fund's investment performance is the first thing to look at, as maybe those extra fees are well spent. Also insurance could be a factor, Kourmpatsos cautions "another fund may require a new medical check up to get the same cover or may not offer the same cover". There may also be exit fees to consider.
Also, some older super funds provide defined benefits on retirement. These can be valuable and can be lost if that account is closed. So before you consolidate think carefully about which account to keep and which to close and get some financial advice.
ASIC's MoneySmart site has some useful tips about consolidating super and consider talking to an accredited superannuation adviser.