What to consider before switching super

You’ve worked hard for your superannuation, so it makes sense it should work hard for you.

COVID, share market volatility and insecurity in the housing market means that as of 30 June, super funds have had their worst year since 1992, with only three funds actually making money for members, HOSTEL balanced, Qantas Super Gateway growth fund and Christian Super – MyEthicalSuper.

Like anything, it pays to shop around. If you are unhappy with the returns, fees or service your fund is offering, it may be time for a rethink.

Read: Where to get the best interest on your savings

Which is fine, but it’s a pain transferring the balance, so you want to make sure you are making the right decision. Before you take the plunge, there are a few things to consider.

Here’s our guide.

Insurance

Ask what insurance you will have under the new fund and check it against your existing insurance entitlements.

You could be losing hundreds of thousands in value if you have to start again at a new fund and a new fund probably won’t cover an existing condition.

Most industry super funds provide death or permanent disability insurance as a default, but often also offer voluntary cover as well if you feel the default amount won’t cover your needs.

Retail super also almost always also offers insurance, generally by the same company. Premiums are often higher than industry funds.

Read: Is life insurance through super worth it?

If you have a self-managed super fund (SMSF), naturally it’s your choice so you can choose any level of cover from any provider.

One tactic to avoid losing your insurance value is to have two funds, but then you have to pay two sets of fees. Do your homework carefully.

Which brings us to …

Fees

It does sound like a lot, but1 per cent versus 2 per cent over the lifetime of your policy essentially means you are paying double the amount of fees.

The smaller the fee, the more money is left over for investing.

If you are considering switching, it’s worth putting the schedule of fees next to your proposed fund and adding them all up.

There are two types of fees, fixed fees, which include ‘membership’ fees, and variable fees that can be charged if your fund manager makes investment decisions.

Consider the long term

Okay, superannuation has had a rough year, but it hasn’t always been that way. Some years have been great. Take a snapshot of the average returns your fund has been providing, compare other funds and makes a decision then. It may not even be worth switching.

A simpler solution may be to move to a different investment option within the fund.

But remember the general rule: the higher the returns, the bigger the risk.

Read: New super fund rules deliver mixed results for retirees

Timing

If you are seriously considering changing funds, and have made a personal deductible contribution to your original fund for the purposes of a tax deduction, you must file the ‘notice of intent’ with the original fund before you switch.

If you move funds before the notice of intent is filed it will be pro-rated down to almost nothing.

Once the ‘notice’ has been acknowledged by the trustee, you can switch funds without damaging the contribution.

Small jobs

Make sure you notify your employer when you change super so the contributions are seamlessly transferred, and don’t be tardy on the paperwork to transfer. These two small jobs don’t sound like much, but missing out on a couple of months of contributions because you have been slack with your paperwork could add up to hundreds.

Did your super fund lose money this year? Have you considered changing funds? We’d love to hear about your experience in the comments section below.