A recent ASIC report into so-called ‘superannuation reviews’ has thrown the spotlight on just how risky quick super changes might be. The subsequent ABC TV report on these questionable super ‘review’ services revealed dangerous traps for those saving for retirement. There is an ASIC investigation underway into at least three companies, whose modus operandi seems to be a cold call with an offer of better returns and pressure to sign documentation to move your super to their management.
Whilst such tactics may sound like a scam to you, many unsuspecting people took the calls and considered the offering. Some even moved their money. We await an ASIC ruling to determine if this is a scam. But in the meantime, what this practice does raise is the broader issue of super performance and when it’s useful to move your super – or not. Today we focus on the pros and cons of rolling over your savings to a different fund and what needs to be considered before you do so. Our focus is on those either in retirement, or pre-retirement with money in industry or retail super funds.
How your super can lead to a comfortable level of income in retirement depends upon many factors. So before weighing up the pros and cons, let’s explore the way super contributes to your ultimate lifestyle after full-time work through some questions about your understanding of super.
How did you pick your fund?
And how much do you know about it? Many fund members did not specifically select their fund – they were defaulted to it by their employer because they did not nominate an alternative fund. This means your first job, your trade or profession could inform who you are with. For many years people would change jobs and not nominate their existing fund, so they would suddenly have two or more funds on the go. This led to a doubling up on fees and often unneeded extra insurance policies. ASIC ran a campaign to encourage people to consolidate, so this is now much less likely to happen, and has resulted in savings for many fund members.
What is your investment setting?
Assuming you have one fund, do you know your investment setting? This might be defensive (highly conservative), balanced (midway) or growth (higher risk). Typically, funds will have about 5-10 settings along this spectrum and you will either have chosen a setting – or be defaulted to one (most likely a balanced investment setting).
How did your investments perform?
Do your returns compare well with other funds?
Check out your super funds most recent financial year performance (1 July 2023 – 30 June 2024), for the investment setting allocated in your account. It’s not relevant if the fund’s growth setting is returning 12% per annum if you are in a defensive setting which is returning 5%. So make sure that you understand your setting and its specific level of performance. Make sure you also look at the ten year returns as performance can vary a lot year to year and super is by its very nature a long term investment.
You can then compare this performance with other funds of interest, assuming you compare with those using the same setting.
What was your balance on 30 June 2023 compared to 30 June this year? How much came out to cover fees, any management charges, insurance, maybe tax? You can now calculate the percentage growth in your savings. You may also wish (assuming you are past Preservation Age) and still in accumulation mode (the savings phase) to consider whether the tax saving on money which is moved to an Account-Based Pension (ABP) is worth considering as part of your broader financial plan.
What about insurance?
Many funds will automatically include life insurance – you will need to ‘deselect’ it to ensure you are not paying for this service if it’s not wanted. Your need for insurance can vary over the years. If you have dependent children and a mortgage, life (and disability) insurance can make a lot of sense. But many empty nesters who are not carrying debt and are no longer employed could decide that life insurance is not an extra they wish to pay for. It’s smart to work out how you and/or your partner might survive financially without insurance before deciding to drop it. If you are thinking about moving funds, will any pre-existing conditions mean a change in premiums or no insurance with a different fund?
Does your fund offer strong support
The Retirement Income Covenant requires super trustees to ‘develop a retirement income strategy for their members, to improve the financial outcomes for Australian retirees’. ASIC and APRA have jointly criticised many funds for taking too long to offer this form of support. Yet some funds are doing a lot to help their members move to the next stage of their superannuation when they start to withdraw income. What does good support look like? Variously, it can include:
- Reminders about rules and options relevant to your age and stage
- Financial advice (often a first free appointment)
- Updates and information to keep you informed about your choices
- Calculators to assist you to check entitlements or project savings
- ‘nudges’ when it’s important to make timely decisions
- Help with the Age Pension
Good funds provide most of the above – it’s really up to you to take advantage of this information and support to make the most of your savings.
Does your fund match your values?
Your fund will have an ESG (Environmental, Social and Governance) or sustainable investment policy statement. It’s worth reading this statement to ensure that you are in a fund that reflects your deeply held values. This might mean a fund that has ethical investments or one that prizes sustainability or certain climate change policies.
Does your fund care about you?
That may sound like an odd question, but if you rarely hear from your fund and they are not offering services, support or information, you may wonder if another is better? Super fund advertising tends to suggest that all funds lavish their members with great love, but that’s not actually the case. Is yours one of the good ones that does?
Are your expectations reasonable?
To go back to the ABC coverage of the cold-calls some people received, one woman was told that her current super fund balance of $110,000 would not increase sufficiently, and that she was likely to miss out on up to $900,000 if she didn’t move it. These are telephone book numbers – they don’t make sense when starting from a base of $110,000. Understanding how super increases over the years and can combine with an Age Pension is fundamental to your sense of how your money will support you over the years. This knowledge also protects you from offers to help you to ‘get rich’ much faster.
Ready, set …stay?
When you consider all the above aspects of how your super is invested, is increasing and how your fund might help you transition to retirement, then it’s time to ask yourself what the gains might be if you change funds.
- Will you have a much higher return assuming the same investment setting?
- Will you get better support
- Will you receive more useful information
- Will the fund’s ESG policy better match your values?
- Will your insurance needs be covered and will this cover remain intact?
Remember, as you often see in the fine print, past performance is no guarantee of future returns, so chasing a slightly higher return is neither guaranteed nor the whole story. If you do feel, on balance, that it will be advantageous to move to another funds, you can set this in motion by making an appointment with your current fund and put the onus on them to explain why you should stay. You may still move, but you may also unlock more support and better service which makes it worthwhile to stay.
Separately, seeking independent financial advice such as the ‘Understanding more about your super’ consultation allows you to ask a qualified adviser all you need to know to review your current retirement income status.
Have you been approached to have your super reviewed?
If so, how did you respond?
Was the offer reasonable or did it feel like a scam?
some funds say they will NOT allow an in specie transfer (rollover). This means you have to sell all the underlying investments, to do the rollover. If you are in accumulation mode, this means what can be a massive CGT bill. Not to mention the timing of the sell down may not be at a good time to do that sale. Definitely better to get the fund you are moving ‘to’ to do the rollover – they will be keen to get your money. The fund you are leaving can deliberately obfuscate and delay the process. There is no law protecting you if your fund takes too long to do the rollover – APRA is swamped with complaints about this but they do nothign about it.
That is a helpful point about rollovers thank you
Some great advice that we should all be aware of.
Perhaps you should do an article on ongoing adviser fees devaluing your super balance for no gain. We had to let ours go as he only ever, over a period of some years, suggested a change of one fund in our retail pension fund. He did a cut and past review every year with no appreciable changes. He did however suggest we change our pension fund to one we had never heard of and who took 1.75% out of the cash portion no matter the interest rate.
We have followed our super adviser through several changes of their alliance with different major funds and their own consulting firm while content with overall returns extra cost to us I suspect the changes were not treated as rollover and each change seems to have had a cost for the change.
I am aware of a financial adviser directing a 40 year old on low income with nothing other than a modest super fund to a super adviser who wanted $2000 initial consult fee but promised a higher return. At best they simply switched him to an investment growth strategy inside his existing super and would then walk away if that approached wiped his small fund in the next downturn
I have also experienced very poor recommendations and outcomes from “financial advisors” and have sadly lost all faith in them. I prefer to discuss super investment strategies with selected friends and navigate my own way through the maze.