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 find lost superannuation funds?

Lost superannuation refers to savings in an account that you’ve forgotten about. This can happen if you’ve opened several different accounts over the years while moving from job to job.

You can use your MyGov account to see details of all your superannuation accounts, including any you might have forgotten. Alternatively, you can fill in a ‘Searching for lost super’ form and send it to the Australian Taxation Office, which will then search on your behalf.

How do you create a superannuation account?

Before you create a superannuation account, you’ll need to check if you’re allowed to choose your own fund. Most Australians can, but this option doesn’t apply to some workers who are covered by industrial agreements or who are members of defined benefits funds.

Assuming you are able to choose your own fund, the next step should be research, because there are more than 200 different superannuation funds in Australia.

Once you’ve decided on your preferred superannuation fund, head to that provider’s website, where you should be able to fill in an online application or download the appropriate forms. You’ll need your tax file number (assuming you don’t want to be charged a higher tax rate), your contact details and your employer’s details (if you’re employed).

Is superannuation included in taxable income?

Superannuation is not included when calculating your income tax. So if you have a salary of $50,000, your assessable income would be $50,000, not $50,000 plus superannuation.

That said, superannuation itself is taxed. It is generally taxed at 15 per cent, although if you earn less than $37,000, you will be reimbursed up to $500 of the tax you paid.

What happens if my employer falls behind on my superannuation payments?

The Australian Taxation Office will investigate if your employer falls behind on your superannuation payments or doesn’t pay at all. You can report your employer with this online tool.

What are government co-contributions?

A government co-contribution is a bonus payment from the federal government into your superannuation account – but it comes with conditions. First, the government will only make a co-contribution if you make a personal contribution. Second, the government will only contribute a maximum of $500. Third, the government will only make co-contributions for people on low and medium incomes. The Australian Taxation Office will calculation whether you’re entitled to a government co-contribution when you lodge your tax return. The size of any co-contribution depends on the size of your personal contribution and income.

How do I combine several superannuation accounts into one account?

The process used to consolidate several superannuation accounts into one is the same process used to change superannuation funds. This can be done through your MyGov account or by filling out a rollover form and sending it to your chosen fund.

How do you find superannuation?

Lost superannuation refers to savings in an account that you’ve forgotten about. This can happen if you’ve opened several different accounts over the years while moving from job to job.

You can use your MyGov account to see details of all your superannuation accounts, including any you might have forgotten. Alternatively, you can fill in a ‘Searching for lost super’ form and send it to the Australian Taxation Office, which will then search on your behalf.

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

Am I entitled to superannuation if I'm a casual employee?

As a casual employee, you’re entitled to superannuation if:

  • 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

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 superannuation?

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

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).

How much superannuation should I have at age 40?

The amount of superannuation you should have at age 40 is based on how much money you need to have at retirement. That, in turn, is based on how much money you expect to spend each week during your retirement. That, in turn, depends on whether you expect to lead a modest retirement or a comfortable retirement.

The Association of Superannuation Funds of Australia (ASFA) estimates you would need the following amount per week:

Lifestyle Singles Couples
Modest $465 $668
Comfortable $837 $1,150

Here is the superannuation balance you would need to fund that level of spending:

Lifestyle Singles Couples
Modest $50,000 $35,000
Comfortable $545,000 $640,000

These figures come from the March 2017 edition of the ASFA Retirement Standard.

The reason people on modest lifestyles need so much less money is because they qualify for a far bigger age pension.

Here is how ASFA defines retirement lifestyles:

Category Comfortable Modest Age pension
Holidays One annual holiday in Australia One or two short breaks in Australia near where you live Shorter breaks or day trips in your own city
Eating out Regularly eat out at restaurants. Good range and quality of food Infrequently eat out at restaurants. Cheaper and less food Only club special meals or inexpensive takeaway
Car Owning a reasonable car Owning an older, less reliable car No car – or, if you do, a struggle to afford the upkeep
Alcohol Bottled wine Casked wine Homebrew beer or no alcohol
Clothing Good clothes Reasonable clothes Basic clothes
Hair Regular haircuts at a good hairdresser Regular haircuts at a basic salon Less frequent haircuts or getting a friend to do it
Leisure A range of regular leisure activities One paid leisure activity, infrequently Free or low-cost leisure activities
Electronics A range of electronic equipment Not much scope to run an air conditioner Less heating in winter
Maintenance Replace kitchen and bathroom over 20 years No budget for home improvements. Can do repairs, but can’t replace kitchen or bathroom No budget to fix home problems like a leaky roof
Insurance Private health insurance Private health insurance No private health insurance

 

 

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.