Why it’s so important to consolidate your super

Why it’s so important to consolidate your super

For many money-savvy Australians, paying exorbitant fees on any financial product or service is a nightmare.

But imagine paying high fees on multiple products which are basically the same thing.

Two thirds of people starting a new job go with the default superannuation their employer has opted for, the Productivity Commission estimates. If you’re doing this while already holding an existing superannuation account, chances are you’re forking out numerous sets of fees for another account.

The simple and most likely reason for this is it’s easier to let your employer do the hard work of arranging a super fund for you, despite the multiple charges you’ll be slugged with.

It’s on you to do the paperwork and let your employer know if you want your superannuation from your new job to be paid into your existing account.

And as annoying as it may be, you could consider consolidating your super so you don’t end up paying multiple fees to multiple super accounts.

Out of the 15.6 million people in Australia who have a super account, about 39 per cent have more than one account, according to the Australian Taxation Office (ATO). That’s more than six million Aussies who are potentially paying for something they’re already paying for.

Apart from the fees, some super accounts come with life insurance, including death cover, total and permanent disability cover and income protection cover.

If you’re covered by any insurance through your super, you’re going to be charged insurance premiums, which will be deducted from the funds in your super account.

This is another reason to avoid multiple super accounts – you could be inadvertently duplicating insurance attached to your super and paying multiple premiums.

But it’s important to remember that when you switch super accounts or move your super into one fund, you may not be covered by the same insurance protection. Be aware of your new super account’s implications for your insurance cover.

And you could be paying more in administrations fees and premiums when you switch or consolidate super. Make sure you compare these by reading the product disclosure statement and know what you’re signing up for, as high fees can potentially eat up your super balance over time.

The good news is Australians are becoming more aware of the pitfalls of multiple super accounts.

The proportion of people with multiple accounts have been steadily declining between 2014 and 2017, the latest data from ATO shows. About 26 per cent of Aussies had two super accounts in 2014, dropping to 24.49 per cent in 2017.

And 19 per cent of people had three or more super accounts in 2014, a number which went down to 15 per cent in 2017.

Almost everyone can choose their own superannuation fund (except people covered by industrial agreements and member of defined benefit funds). So, why not exercise your right and avoid multiple accounts, rather than sticking with your employer’s default?

Quick guide to consolidating your super

  1. Try contacting your existing fund to see if they will consolidate your super for you.
  2. If they don’t offer this service, or you prefer to do it yourself, create a myGov account if you don’t already have one. Otherwise, login to your myGov account.
  3. Link the ATO to your account. Go to the ATO section.
  4. Click the Super tab. Here, you should be able to find details of all your super and super accounts (if you have more than one that you might have forgotten about).
  5. Decide which one you want to have as your primary super account and transfer the money from the other account(s) to your chosen one. Your money should be transferred within three days.
  6. Let your employer know which super account to pay your super into for future payments.

Top 5 performing superannuation funds (past five-year return)

Company & product Past five-year return Admin fee Calculated fees on $50k balance
Hostplus - Hostplus Superannuation Fund 9.57% $78 $608
QSuper - QSuper Lifetime 9.44% $0 $465
AustralianSuper - AustralianSuper 9.44% $117 $447
UniSuper - UniSuper Accumulation - MySuper 9.31% $96 $366
MTAA Super - MTAA MySuper 9.05% $78 $503

*Note: Data last updated on 31 Jul 2019

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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.

How does superannuation work?

Superannuation is paid by employers to employees, at least once every three months. The ‘superannuation guarantee’ is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent of your salary. The guarantee 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.

Superannuation is generally taxed at 15 per cent. However, if you earn less than $37,000, you will be automatically reimbursed up to $500 of the tax you paid. Also, if your income plus concessional superannuation contributions exceed $250,000, you will also be charged Division 293 tax. This is an extra 15 per cent tax on your concessional contributions or the amount above $250,000 – whichever is lesser.

You can withdraw your superannuation when you meet the ‘conditions of release’. The conditions of release say you can claim your super when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

 

What fees do superannuation funds charge?

Superannuation funds can charge a range of fees, including:

  • Activity-based fees – for specific, irregular services, such as splitting an account after a divorce
  • Administration fees – to cover the cost of managing your account
  • Advice fees – for personal investment advice
  • Buy/sell spread fees – when you make contributions, switches and withdrawals
  • Exit fees – when you close your account
  • Investment fees – to cover the cost of managing your investments
  • Switching fees – when you choose a new investment option within the same fund

How much is superannuation?

Superannuation is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent of your salary.

The ‘superannuation guarantee’, as it is known, has been 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 take money out of my superannuation fund?

Superannuation is designed to provide Australians with money in their retirement. The government has strict rules around when people can take that money out of their fund because it wants to prevent people eroding their savings before they reach retirement.

As a general rule, you can only take money out of your superannuation fund when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

That said, you can take money out of your superannuation fund early based on one of these seven special conditions:

  • Compassionate grounds
  • Severe financial hardship
  • Temporary incapacity
  • Permanent incapacity
  • Superannuation inheritance
  • Superannuation balance under $200
  • Temporary resident departing Australia

When did superannuation start?

Australia’s modern superannuation system – in which employers make compulsory contributions to their employees – started in 1992. However, before that, there were various restricted superannuation schemes applying to certain employees in certain industries. The very first superannuation scheme was introduced in the 19th century.

How much money do you get on the age pension?

Pension payments can be reduced due to the income test and asset test (see ‘What is the age pension’s income test?’ and ‘What is the age pension’s assets test?’).

Here are the maximum fortnightly payments:

Category

Single

Couple each

Couple combined

Couple apart due to ill health

Maximum basic rate

$808.30

$609.30

$1,218.60

$808.30

Maximum pension supplement

$65.90

$49.70

$99.40

$65.90

Energy supplement

$14.10

$10.60

$21.20

$14.10

TOTAL

$888.30

$669.60

$1,339.20

$888.30

What is a superannuation fund?

A superannuation fund is an institution that is legally allowed to hold and invest your superannuation. There are more than 200 different superannuation funds in Australia. They come in five different types:

  • Retail funds
  • Industry funds
  • Public sector funds
  • Corporate funds
  • Self-managed super funds

Retail funds are usually run by banks or investment companies.

Industry funds were originally designed for workers from a particular industry, but are now open to anyone.

Public sector funds were originally designed for people working for federal or state government departments. Most are still reserved for government employees.

Corporate funds are arranged by employers for their employees.

Self-managed super funds are private superannuation funds that allow people to directly invest their money.

What are reportable superannuation contributions?

For employees, there are two types of reportable superannuation contributions:

  • Reportable employer super contributions your employer makes for you
  • Personal deductible contributions you make for yourself

What are concessional contributions?

Concessional contributions are pre-tax payments into your superannuation account. The payments made by your employer are concessional payments. You can also make concessional contributions with a salary sacrifice.

What is superannuation?

Superannuation is money set aside for your retirement. This money is automatically paid into your superannuation fund by your employer.

When did superannuation start in Australia?

Australia’s modern superannuation system – in which employers make compulsory contributions to their employees – started in 1992. However, before that, there were various restricted superannuation schemes applying to certain employees in certain industries. The very first superannuation scheme was introduced in the 19th century.

How do I choose the right superannuation fund?

Different superannuation funds charge different fees, offer different insurances, offer different investment options and have different performance histories.

So you need to ask yourself these four questions when comparing superannuation funds:

  • How many fees would I have to pay and what would they cost?
  • What insurances are available and how much would they cost?
  • What investment options does it offer? How would they match my risk profile and financial needs?
  • How have these investment options performed historically?

Am I entitled to superannuation if I'm a contractor?

As a contractor, you’re entitled to superannuation if:

  • The contract is mainly for your labour
  • You’re over 18 and earn more than $450 before tax in a calendar month
  • You’re under 18, you work more than 30 hours per week and you earn more than $450 before tax in a calendar month

Please note that you’re entitled to superannuation even if you have an Australian business number (ABN).