Why consolidate your superannuation?
As the workforce changes, many people are regularly moving between jobs… and with every new employer, it’s not uncommon to leave the set-up of your superannuation to the accounts department.
Therefore, it’s entirely possible that by the time you reach the age of 40 you may have multiple super funds.
And even though your super appears to be safe… having multiple accounts is not necessarily a good thing.
Here are some of the reasons why you should consider consolidating your super.
Government reforms
On the back of the Royal Commission into Finance and Banking, last year the Australian Federal Government introduced the “Protecting Your Super” package of reforms. As part of these reforms, super account balances of less than $6,000, which have also been inactive for at least 16 months, were to be paid to the Australian Tax Office (ATO) and then consolidated with the member’s active super account.
At this time, many Australians took the opportunity to take charge of their lost and inactive super accounts. But if you didn’t do this (and the ATO did not do it on your behalf because your balance is higher than $6,000) then now is time to reconsider.
If you are not sure if you have multiple accounts, you can find out easily, through the ATO website.
Recent figures show that almost half – about 45% – of Australians have more than one super fund, so it is worthwhile checking. If you do have more than one fund, then it is worth investigating whether it would be beneficial to consolidate them into your preferred fund.
Reasons to consolidate
Firstly, your super becomes easier to manage and keep track of when it’s all in one place.
It’s important that you always treat your super as an active investment and review it regularly.
Superannuation rules and regulations have changed significantly in recent years, so by seeking professional advice from a superannuation specialist, you might discover that you can contribute more, or that there could be a different fund which is more appropriate for you.
Specialist advice might help clarify whether an SMSF would be advantageous to your current circumstances, or whether you can make spousal contributions, which could have a tax benefit.
Methodical assessment of your superannuation account is vital… after all, your retirement will depend on how well your super has performed over the years.
Another major reason to consolidate your super is that you could save on the cost of fees. Multiple accounts usually mean you’re paying multiple sets of administration fees, which over the course of a year can be as much as $500 or more per fund. When you have one account, you have one set of fees, so it’s worthwhile reviewing the overall costs of maintaining more than one super account.
You will need to rely on your super in retirement
Australia has had compulsory superannuation since the early 1990s. The system was set up so that eventually the Federal Government could cease the aged pension… based on the fact that everyone would be self-funded in retirement through their twilight years.
It’s not easy to work out how much you might need between entering retirement in your 60s and living until you’re in your 90s.
But it makes sense to say that the more super you have, the more comfortable and financially secure you’ll be in the latter years of your life. If you have one single fund then it can be easier to be well-prepared. You know how much you’ve got and how it’s tracking for your retirement.
Remember, you shouldn’t just ‘set and forget’ your super… that could adversely affect your financial future. You should make it a habit to review your super when you change jobs, and at other times too… if you get married, buy a home, open a business, or start a family.
Planning for a financially healthy retirement starts long before you reach retirement age.
What insurance policies are within your super?
The other consideration is that many superannuation accounts have insurance policies attached to them, such as personal income protection or life insurance. You could be paying multiple premiums on cover you don’t need or already have elsewhere.
These types of ‘generic’ policies often offer a basic level of cover, but you may be better off with tailored personal insurance – that is, policies that reflect how much you would need in terms of a payout, based on your current circumstances and future expectations, if you were no longer able to work in order to maintain your financial commitments, and still live comfortably.
Navigate your options
Let’s face it, superannuation is a pretty dry topic.
Certainly, it’s a conversation-stopper at any social event, but that doesn’t mean you should ignore it.
It really is one of the most critical aspects of your overall finances. And a qualified financial adviser can assess your situation and provide you with useful information to help you navigate your options and to choose the ones that will serve your individual plans and financial goals.
If you choose to consolidate your super, the next step is to get professional advice to make sure your super is working its best for you.
Because while life is for living, you need to make plans for the future, too.
And while retirement might seem years away, planning now and actively managing your super throughout your working years will make all the difference to your super balance when the time comes to put your feet up.
Contact our team today to discuss the management of your superannuation.
