About 28 million superannuation accounts for 25 million Australians look to be way too many, and seemingly justifies a Federal Government campaign to forcibly consolidate funds.
Many will say we have too many accounts because people change jobs and do not elect where their superannuation should be paid to. This forces employers to open a new account to make their superannuation guarantee payments. This is a small part of the problem and the simplest reason to point the finger at, but we should look deeper at the real reasons why we may have multiple accounts.
As a financial adviser, one of the most common reasons why I recommend people retain multiple superannuation accounts is because of insurance cover.
People may have insurance cover in a superannuation fund which they cannot acquire elsewhere. The insurance cover may have been put in place when the person was healthy, however, since then their health may have deteriorated, and they can no longer attain cover elsewhere. Now the Federal Government wants any superannuation account under $6000, which has not received a contribution in a 13-month period, to be automatically transferred to the Australian Taxation Office.
Thankfully, this policy has been snared in parliamentary argy-bargy with Labor and the Greens, and has not yet had a chance to potentially do untold damage to uninsured Australians who couldn’t care less about life insurance until they or their family need it. It seems many of us put more value on our cars than our lives.
A survey by financial products marketer Finder last week revealed just 31 percent of Australian parents had life insurance outside of superannuation, compared with 70 percent who had taken out car insurance.
It also pointed to the Productivity Commission report estimating about 12 million Australians have one or more forms of life insurance through superannuation. There can be a raft of reasons to hold multiple accounts.
Some superannuation accounts are opened without an investment component or balance at all – it only holds an insurance policy. There are no account or administration fees on these accounts. They are created only to hold an insurance policy and pay the premiums from transfers from other superannuation accounts or by personal superannuation contributions.
Generally, people who keep a second or third account open for their insurance cover retain a small balance of say $5000 to continue to pay for their premiums. Additionally, people may have changed jobs and therefore the new occupation is no longer covered by any other insurers – for example, an office worker moving to work on the mines.
In my experience, those people who do not engage with their superannuation end up having multiple accounts. These are the very people who need multiple accounts for the default insurance cover with each fund.
They are generally people who are grossly underinsured. If a serious injury or medical event happens, then there is a great rush to engage with super to see what insurance cover they have. Most often it is not enough, but some is always better than nothing at all.
FOR MORE INFORMATION ON SUPERANNUATION ACCOUNTS
For more information on superannuation accounts, please contact your local RSM office.