There are many reasons why you may be toying with the idea of changing from your current superannuation fund to another. Maybe you believe that other funds are delivering better performance and returns. Savings on fees could also be a reason you want to shift. You may be thinking of switching for better insurance coverage, or more investment or estate planning options.
You have the option to switch to another superannuation fund, but you should know what to look for in your new one. You should also know the pitfalls to avoid when making the shift.
What should you look for in a fund?
A superannuation fund should give you good returns over a long period. That's why you should evaluate past performance over many years, say five to 10 at least. While past performance is not always an indication of future returns, it's still an important factor you would want to consider when you’re evaluating different funds.
The fees that your super fund charges may eat into your returns. Naturally, you will want a fund that charges reasonable fees. But if you’re switching mainly to save on fees, then do find out what the changeover is likely to cost you. You may be charged fees for transactions, withdrawal, switching, or other costs, which could nullify the benefit of the fees saved for some months or years.
Each fund has its own investment options, so you should look for one aligned to your own philosophy. Some funds may pursue investment avenues that offer high growth opportunities, however this could also mean that your money is exposed to a higher risk If anything goes wrong. You may prefer another fund that has a more balanced approach, investing across different asset classes, even if the growth is a little lower. Or you may prefer to invest in an ethical super fund that avoids investments in business such as armaments or fossil fuels.
Calculate the amount of insurance cover you require and get quotes from the funds you’re considering. Some funds will tell you the premiums net of the 15 per cent tax credit, while others will tell you the gross premium before applying this tax credit. So when you compare, remember to compare either gross to gross or net to net. If you are closing your account with your current super fund, all your insurance with them will be cancelled. Getting insurance with a new fund may prove to be more expensive as you are now a little older and may have some health issues. You may want to consider keeping a small balance with your existing fund so that you can continue your current insurance cover.
You can use RateCity’s superannuation comparison table to see the performance, fees and important features of different funds and select the one that best suits you.
How do I change my superannuation fund?
Once you have chosen your new super fund, let your employer know so that they can deposit their contribution into the right fund. You and your employer must both fill in the Australian Taxation Office’s (ATO’s) superannuation standard choice form.
Remember to inform your new fund about your voluntary contributions within the concessional cap, also known as deductible contributions. If you forget to do this they may take them to be non-deductible contributions, and you could end up paying much higher tax.
Your current super will liquidate all your investments before the money is transferred to the new fund. This process could take a few weeks, and during this time, you will not receive dividends, nor will you get capital appreciation on your investments. So you might want to time this switch keeping market trends in mind.