Q: Six months ago, my wife and I started a self-managed super fund. We pay a flat fee to have it administered on our behalf. All the assets in the fund at this stage are my rollovers. I am also in the PSS (a public sector fund) and my wife has a small amount in an industry fund, where she contributes enough to receive the Federal Government’s co-contribution. She also receives the employer’s compulsory super. I intend to salary sacrifice into our fund in the near future with the purpose of allocating these contributions to my wife. We are in our late 40s and wish to retire at 55. Should we roll over her industry fund account into our fund to save on administration costs?
I cannot give a definitive yes or no because I am not permitted to give advice, and I’m not familiar with your full financial circumstances. Even so, I can certainly suggest some issues you need to think about before closing the door on the industry fund.
Apart from saving costs, you may also want to consider your life insurance coverage. Buying insurance with a self-managed super fund or as an individual outside the super system, is usually more expensive than equivalent cover in an industry fund. Depending on your wife’s health and age, she may have difficulty securing insurance cover if she has pre-existing health problems.
A DIY super fund member seeking individual life cover is required to undergo a medical test before receiving insurance cover. Instead of applying for new life insurance cover for your wife (if that’s what you were planning to do), another option is to retain your existing insurance cover on a permanent basis by maintaining sufficient funds in the industry fund to cover the insurance premiums. This option can be cost-effective where you are paying a group rate for your insurance — a lower premium than you could negotiate as an individual.
A shorter-term strategy is to take advantage of a continuation option that protects you while you apply for new cover. What this means is that your old fund, if it offers this option, continues to provide insurance cover for a time, often 60 or 90 days.
Many industry funds also give you access to other benefits such as low-fee home loans, managed funds and financial advice. Retaining a super balance in the industry fund leaves these options open. Alternatively, the advantages of consolidating your wife’s benefits in your DIY fund may outweigh the benefits of cheaper insurance coverage and access to low-fee financial products.
Tip: For anyone considering starting their own fund (or for those individuals already running self-managed super funds), I suggest you read the following:
- ‘Is self-managed super right for you?’ (ASIC and ATO fact sheet)
- ‘Setting up a self-managed super fund’ (ATO website link: www.ato.gov.au/super)
- ‘Running a self-managed super fund’ (ATO website link)
- ‘Self-managed super funds – administrative obligations’ (ATO website link)
- ‘DIY Super: It’s your money… but not yet!’ (ATO publication number: NAT 11393)
- ‘Self-managed super funds: Role and responsibilities of trustees’ (ATO publication number: NAT 11032)
- ATO’s super website (www.ato.gov.au/super)
- ASIC’s consumer website FIDO and click on “superannuation”.
My book, Superannuation for Dummies (2nd edition), also explains the super rules in plain English.
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