Consolidating superannuation involves taking risks

Consolidating superannuation, by some estimates there are around $20.8bn in lost and unclaimed super in Australia. The last financial year saw $4.38bn worth of lost super reunited with their owners across 537,000 accounts.

Consolidating superannuation involves taking risks. While consolidating super is one of the easiest ways to reduce fees and increase the money available for retirement, recent analysis by ASIC shows that it needs to be done in an appropriate way for members to gain benefits. For example, it found evidence that some entities were charging high fees for consolidating super or not giving due consideration to insurance needs.

We’ve always been told that consolidating our superannuation is one of the easiest ways to grow our retirement funds. By reducing the amount of insurance, account-keeping, and investment fees paid in separate accounts, more money is available for super investments. However, recent findings by ASIC seem to suggest that if not done correctly, consolidating super may actually be detrimental to your retirement savings.

The ATO estimates that at 30 June 2019 there were around $20.8bn in lost and unclaimed super across the country. From 1 July 2018 to 30 June 2019, over 537,000 accounts to the value of $4.38bn were consolidated or transferred by fund members using the ATO online services. So, while there are plenty of opportunities to gain more super, there might also be a lot to lose if you’re not careful.

According to ASIC, the primary tool that super trustees have to assist consumers consolidate their superannuation accounts is the ATO’s “SuperMatch2” service. It enables super trustees and other entities authorised by trustees to obtain a list of active super fund accounts including lost member accounts and ATO-held monies that belong to their members or clients.

The issue for consumers is the misuse of the “SuperMatch2” service by certain parties to create advertisements for lost super searches as a tool to gain new business, charging high fees to consolidate superannuation accounts, or consolidating accounts without due consideration to insurance or performance of the funds.

ASIC notes that in the course of its work with the ATO, it has seen services which were marketed as “free lost super and superannuation consolidation services” by entities (financial advisers, trustees, and fund promoters) that typically erode a member’s super balance by $500 to $1,000 in advice fees.

In other instances, it has seen advisers charge a 4% fee based on the consolidated superannuation amount which could lead to consumers losing a large amount of money depending on their balance.

Other concerns raised by ASIC in the area of inappropriate consolidatins superannuation, this includes:

• advisers opening transitional “staging super account” to consolidate recovered fund before monies are moved to the client’s fund of choice (which may never happen), with advice fees being deducted from the staging account;
• providers using high pressure sales tactics or forged signatures, leading to members being unable to give informed and legitimate consent to the consolidation;
• issues with fees for no service when advice providers offer an upfront consolidation service, then charge an ongoing asset-based fee with no further service – or receiving monies to which they have no entitlement in other ways; and
• providing members with a lack of balanced, or even misleading information about the benefits and risk of consolidations including the potential loss of an insurance cover.

While ASIC says it supports appropriate consolidating superannuation, with consumers able to locate lost super and save fees, there may be risks involved and consumers should do their research and use free services offered by the ATO or myGov wherever possible. It has also taken steps to increase oversight of trustees’ use of “SuperMatch2” and working with the ATO, will remove access from entities where there are concerns.

Consolidating superannuation, do you have lost super?

If you think you may have lost super, its easy and free to check with the ATO or through myGov. From there, you can make a decision to reunite your lost super with the rest of your retirement funds. If you’re unsure about the process, Hunter Partners can guide you through. Contact Hunter Partners today.

Hunter Partners are Accountants, Tax Agents and Financial Planners. We can assist you with all aspect of your accounting, tax and financial planning requirements, call Hunter Partners on (07) 4723-1223.