Meet Simon, a senior manager within a top tier consultancy firm. At 54, he has enjoyed a strong salary with annual bonuses and lives comfortably with his family. He has recently turned his attention to the thought of retirement – with his 55th birthday coming up, he has been thinking a bit more about his financial future and maintaining his comfortable lifestyle in retirement.
Simon has spent most of his career within one organisation, until 2010 when he moved to a new organisation into a senior role. At the time of changing employers, Simon opted for the new employer’s preferred super fund, based on feedback from his co-workers, it was the easiest option at the time.
Having only changed organisations once in his career, he has found himself with two superannuation funds. He had good intentions of rolling over the old one when he got around to it.
APRA names poor performing superannuation funds
Fast forward 11 years, Simon still has good intentions of consolidating his superannuation. He was acutely aware that having two super funds was not ideal and he had been thinking about the costs and performance of the funds, realising he really didn’t know too much about how his funds were performing and what they were costing him. Given retirement is now within his sights, he made an appointment with Tribel Advisor, Jez Azzopardi.
The meeting was set, however it was still in the quadrant of important but not urgent, until Simon received a letter from one of his superannuation funds in relation to the outcomes of the APRA’s inaugural performance test, as part of the Your Future, Your Super reforms.
His super fund had failed to pass the test. This was the trigger he needed to prioritise his meeting with Jez to conduct a review of his current superannuation and make a recommendation on how best to consolidate the funds and address the situation of the poor performing fund.
Simon was not alone in this situation; many Australians would have received the same letter from the super funds who were named and shamed. All were required to urgently write to their members and offer to fix the situation. That would mean making the necessary improvements to ensure they pass next year’s test or transfer their members to a fund that can deliver a better outcome.
A list of poor performing super funds can be found via APRA’s announcement or via Tribel’s previous article on the subject of poor performing superannuation.
MySuper – The new default option for superannuation funds
MySuper was introduced as part of a reform introduced by the Gillard government to replace existing default super products. From around 2017, all member accounts in default investment options were moved to MySuper products. The MySuper product was aimed at providing a cost-effective, balanced product for the majority of Australian workers who were invested in the default option in their current super fund.
Simon’s poor performing fund was a MySuper account. Simon didn’t choose this option, however it is a result of complacency or lack of knowledge. As of September 2021, a whopping $923 billion was invested across over 14 million MySuper member accounts.
This set and forget practice is commonplace, especially for those who have been relatively stable in their employment and haven’t had any reason to think about or review their superannuation. According to Finder’s Consumer Sentiment Tracker, one in ten Australians currently have more than one active super fund and never look at their balance. One in three say their employer chose the fund for them.
Consolidating Superannuation funds
You may think that consolidating your super funds is a relatively straight forward exercise. In fact, the government offers a free ‘find my super’ function and all of the super funds conveniently offer to find and roll over the funds on your behalf.
Consolidating your funds can result in significant savings of fees, however it is not simply about choosing the fund with the highest balance, as many have done. This may not be the best fund for you – the smaller one may be better performing or perhaps you need a completely new fund. Therefore, engaging a financial advisor to conduct the comparison is the smart move.
Even once you consider the fee you will pay for the financial advice service, you may find, as Simon did, that you will be paying less fees annually and earning better returns because of changing super funds.
To improve Simon’s retirement outlook, it was important for Jez to review and understand the current situation.
- On the surface, Simon had a healthy balance across both his superannuation funds, this is based on such a high income and regular employer contributions.
- Upon review both super funds were charging quite hefty fees compared to other products.
- Both super funds were relatively passive when it came to investment performance, one was a closed fund and one was a poor performer.
- Both of Simon’s funds had no insurance attached or built into the fund.
Choosing the right superannuation for you
Once the review had taken place, it was important to understand Simon’s future goals and preferences in terms of investment options.
Simon was not keen to be proactively involved in the investment choices – he had little knowledge in the area of investments, so he preferred to leave it to the fund managers. At this point a super comparison with several highly rated funds was conducted. The comparison considered the performance of the funds from the past five years. For Simon, both of his funds did not stack up in terms of fees or performance therefore it was decided that moving to a new fund was the best option.
Insurances held within Super
Before consolidating or closing any existing superannuation fund, it is important to check if there is any insurance sitting inside the fund. For example, life insurance or total permanent disability insurance was often structured within the superannuation.
As previously mentioned, Simon did not have any insurance linked, however he did have an external policy which was being paid from the super fund via enduring rollover.
‘In cases where the client does have insurance cover inside a super fund, we never close the existing super fund or cancel the existing cover until the new replacement cover has been approved. In those cases, we do a partial transfer of super and then full transfer once the cover has been accepted.’ Jez noted.
Once the new fund was set up, the insurance premiums will now be paid for via the new super fund.
The aftermath – better performance, less fees
Consolidating your super with the help of a financial advisor will not only save you time and money. It can also mean a much better retirement lifestyle. With so many superannuation products on the market, each vary widely in performance, management fees and investment strategy. It can be overwhelming for most people.
As Jez put it – ‘If you are paying for a Ferrari, you expect a certain level of performance. Some funds are charging ‘Ferrari’ fees but severely lacking service and performance. It is important to choose the fund that is right for your individual situation.’
In Simon’s case, his new super fund is platinum rated and has consistently performed well. The fees were significantly lower than both of Simon’s previous funds and having it all in one place means it will be easier to keep track of and monitor the performance in the lead up to Simon’s well-deserved, comfortable retirement.
In the first year, he will save a whopping 70% in costs. That savings well and truly covered the fee for the financial advice.
Simon’s rollover of super funds could have been poorly resolved via a free online service, instead, Simon’s consolidation resulted in a much better outcome for his entire family.
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