Wednesday, 13 June 2012

Consolidating your superannuation accounts

This is my third post in my superannuation series and will cover the benefits of consolidating your superannuation accounts.  For those who want an overview of the superannuation system in Australia I have posted on this before as well as the main types of superannuation funds.

Superannuation is typically a 'set and forget' type of investment program.  From a psychology point of view it is probably the best type of investment system because it gets taken out of your wage every month before you have seen it, invested in the same range of asset classes regardless of the prices (i.e. dollar cost averaging) and very few workers actually bother to check the superannuation portfolio until they get closer to retirement which means that the psychological aspects of investing do not impact decision making. 

For all these 'positives' the major negative is apathy.  Because it is compulsory by law, most employees barely even think about which superannuation account their money is being paid into.  For those that change jobs (like myself) you may end up with multiple superannuation accounts because employers use different funds.  I have been working for less than 10 years and already have 4 superannuation accounts with 3 different funds. 

There are two big problems with this
  1. You are paying fees on every superannuation account.  Some of these fees can be low (e.g. with industry funds) but some can be very high.  As there is no real benefit to having multiple superannuation accounts as you can split your investments across multiple asset classes with the one fund manager you pay excess fees for nothing
  2. You often end up paying large amounts for things like life insurance on each account.  As a matter of course a lot of employers provide life and income protection insurance through employees super funds.  This is a great perk offered by many employers and all employees should take this up.  The problem is that when you move to a new employer the insurance protection from your old super fund stays in place but you have to keep paying for it unless you cancel it.  Over 3 to 4 super funds this can add up to close to a thousand dollars a year
The easiest way to avoid these costs are to combine your super accounts into one account.  Unfortunately there is no easy way to do this (although some retail funds such as BT and Westpac have realised this and are trying to make it easier to win customers).  What you need to do is the following:
  1. Collect all the details of your old superannuation funds
  2. Go to the website of the new superannuation fund or the fund that your current employer is paying your super into
  3. Download a consolidation form and fill in all the super funds old details
  4. You need to send along certified copies of your passport / drivers licence etc.  This is the biggest pain to get but if you go along to a police station they will do this for you (trust me it is much easier than going to a bank)
  5. Mail it to your new super fund and they should do the rest of the work (note that you cant scan / fax and email this)
Once you have all your money in one account you can split it among the different investment classes as you see fit.  Further you will not be paying excess fees and will not be over insured and paying premiums on multiple insurance policies that cover the same risk.

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