The case against consolidating your super

By David Baruffi, DipFP B.Ec MTax, CERTIFIED FINANCIAL PLANNER®, Director, Blueprint Wealth 

There have been repeated calls from the Government and superannuation industry about the advantages of consolidating your super funds. The bulk of the discussion centres on the saving of fees when moving your super funds from a number of funds into one fund.

However, there is a case against consolidating super which is sometimes overlooked.

Most people end up with multiple super funds after changing jobs, with each new job having a different super fund. (I had one couple that had 35 super funds between them.) The days of lifetime employment in one company are long gone and so are the superannuation benefits that came with lifetime employment. Most funds are now portable; that is, when you change jobs you can continue to use the fund from the previous employer.

When you consolidate funds you do run the risk of moving to an inferior fund or losing the insurances as you move funds. It is also important to note that not all funds offer automatic insurance cover.

We have had two cases where NOT consolidating funds has had a positive benefit.

The first case was the unfortunate death of a miner with a young family. In this case, the miner had moved jobs three times and had not consolidated his super when he moved. On his death all three funds (which had built-in life insurance) paid out. Although the total payout was less than what was optimal cover, the extra payout was welcomed by his widow.  By not consolidating his super he was paying additional fees; however, this was incidental compared to the extra insurance his widow was paid out.

The second case was on the death of a client’s sister-in-law. When in general conversation our planner suggested the client tell his brother to collate the super funds, the client replied that “she didn’t have much in super.” Although this was the case, the husband did follow up the numerous super funds and claimed all of the insurances which paid out over $600,000.

The decision of which funds to consolidate to can be very difficult to make. All superannuation funds differ in the investment options they have and the insurance they provide. As in life it is not always the cheapest that is the best. As for performance, it is hard to get an “apples to apples” comparison when it comes to super funds as they all differ and any comparison would vary from year to year.

I am not suggesting you refrain from consolidating your super. I would suggest you check your funds carefully before consolidation. You want to ensure the fund suits you and that you have adequate insurance cover, particularly if you are consolidating by sending the Australian Taxation Office (ATO) rollover forms through to the super funds, or through the ATO website consolidation option.

If in doubt, seek advice from a CERTIFIED FINANCIAL PLANNER ®. They will advise you on which fund to consolidate to and how much insurance cover you need.

At Blueprint Wealth, we offer financial advice that is right for you, no matter what stage of life you are at. Contact us today to set up a plan that is right for you.

David Baruffi is a Director of Blueprint Wealth and has been a Financial Planner for over 15 years. David’s personal philosophy is founded on the notion that knowledge is the key to success. He is a CERTIFIED FINANCIAL PLANNER® who holds a Bachelor of Economics and a Master of Taxation. David is also recognised as an SMSF Specialist Advisor™.

David Baruffi is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited.

Blueprint Planning Pty Ltd ABN 78 097 264 554 trading as Blueprint Wealth is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited ABN 89 051 208 327 Australian Financial Services Licence 232706 and Australian Credit Licence 232706

Disclaimer: Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters.