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Switching super: who would you turn to for advice?

Switching super: who would you turn to for advice?

Shocking new research from Roy Morgan has indicated that in the three years to November 2015 the average amount of superannuation switched per year was $35 billion with 31 per cent of switchers receiving no financial advice before making the move.

As the government prepares to implement new laws, opening the $9 billion default super market to allow everyone to choose their own fund, this figure could soon be on the rise.

Of the remaining survey participants, 33 per cent of those who switched funds sought professional advice from either a financial planner, adviser or accountant while the remaining people talked to either their employer, financial institution, friend or family member before changing funds.

Norman Morris, the Industry Communications Director at Roy Morgan, commented, “Given the complex nature of superannuation, the lack of consumer engagement, poor understanding and low confidence in the system, it is vital that more people get advice when making decisions about switching their fund.”

However, these figures point to a larger issue of mistrust within the community towards financial professionals that the Turnbull government is seeking to remedy with new regulations. The regulations include an increase in the amount of education required to become an accredited financial adviser as well as mandatory ongoing professional development and a comprehensive code of ethics.

However, with the changes not due to be implemented until next year, it seems unlikely that they will have an immediate effect on the number of Aussies seeking professional advice before switching funds.

The report also revealed the inaccessibility of professional financial advisers that limits lower income earners from using these services. The average super balance of those seeking professional advice was $233,000 compared to $109,000 of those seeking no advice and $96,000 for those receiving advice from their employer.

With most financial services incurring a hefty fee for their advice it is often simply not practical for low income earners to engage their services.

The likelihood therefore of everyone engaging professional services before making a decision to switch super funds is low. Instead it will likely continue that more and more Australians do their own research and use comparisons to make their own decisions.

ASIC has provided a set of guidelines to consider before making the decision to switch your super fund:

  • Check how well your current fund performed over at least 5-10 years. The fund’s annual report tells you about the investments it made and how they performed during the year.
  • Check if the actual return broadly matches the return target for your fund. If not, look for a reasonable explanation. Don’t panic if the short-term returns are negative: remember that super is a long-term investment.
  • Make sure you understand the consequences of changing, especially if you’re in a defined benefit fund. Check for exit/termination fees, higher/lower employer contributions, any changes in insurance cove and how the change affects your retirement benefit.

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Learn more about superannuation

How do you open a superannuation account?

Opening a superannuation account is simple. When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You might want to provide your tax file number as well – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

What superannuation details do I give to my employer?

When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You should also provide your tax file number – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

What is the superannuation rate?

The superannuation rate, or guarantee rate, is the percentage of your salary that your employer must pay into your superannuation fund. The superannuation guarantee has been set at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

Can I choose a superannuation fund or does my employer choose one for me?

Most people can choose their own superannuation fund. However, you might not have this option if you are a member of certain defined benefit funds or covered by certain industrial agreements. If you don’t choose a superannuation fund, your employer will choose one for you.