There’s growing concern around the fees associated with managing super, with many failing to see the wood from the trees when it comes to the difference between fund management fees and insurance premiums.
Throw into this argument the $18bn that is allegedly sitting in lost or unclaimed super and you see why such a strong focus on organising and consolidating super is being facilitated by the government and the Australian Tax Office.
In Australia, we are also seeing an increased frequency by which Australians are now changing jobs or careers. By age 45, many Australians have changed employers between three to five times.
This creates an opportunity for a new super fund to be set up each time a new job is commenced, resulting in more lost super and potentially unnecessary duplicated fees.
The solution, some would argue, is in consolidating super. Tidying up all your super into the one fund, usually the one with your current employer.
Consolidating super, when done right, has the potential to improve the investment performance and management of an individual’s super, relative to their risk tolerance and personal needs.
However, the problem or risk with this lies in the ways by which this is done, and some online systems, which omit sufficient reference to the potential loss of personal insurances via the consolidation process.
Avoid blowing up your risk protection
The new trend that exists is to simply grab a fund's super consolidation form, or log in to their online system, enter the required account details and lodge the transfer request. Then boom the transfer is done.
However, these forms often fail to sufficiently reference the potential loss of your personal insurances that will occur through this consolidation process. At best they provide a cursory reference to the potential for you to lose your insurance when the transfer is done.
Once the form is signed, if any, the insurance is lost and can never be recovered.
If you’re young, fit and healthy, have sufficient cover in your active fund, or outside of super, this may not be an issue.
But as the massive under insurance data tells us, for many Australians, insurance in super is their only cover.
Therefore, by signing that form you are potentially signing away your family’s financial risk protection.
Manage your super and protect your family
Until something changes with these forms, and some of the online systems, it appears you are either going to have to rely on your own ability to assess the risk of these types of transactions or make the decision to seek advice from a specialist.
If you decide to go it alone, you should consider some key questions about insurances when consolidating super, including:
- How much insurance cover do I need to protect my family, on my death or disability?
- Do my existing super funds hold insurances and will they be lost if I consolidate to a new super fund?
- Have I had any health-related issues that could prevent me from obtaining insurances in the new super fund or elsewhere?
- What could be the financial impact on my family if I died or became permanently disabled, after I consolidated my super and potentially lost my insurances from the previous funds?
The answers to questions like these will help to determine whether you pursue a consolidating super strategy and how it will impact your family’s insurance planning.
When reviewing your retirement and risk management plans, it's worth your time to speak with a specialist.
For more information on consolidating super
RSM financial specialists take the time to determine your personal financial goals and work with you to create an appropriate plan which builds for your future and protects for the now. Click here to contact an RSM financial specialist.