- Six questions to ask before switching investment options
- 1. How often can you change investment options?
- 2. What are the costs (if any) of switching?
- 3. How is the investment return calculated when switching?
- 4. When is the switch request processed?
- 5. Can you change your mind?
- 6. Will you be notified when the switch is made?
- How to switch investment options
- Decide how much super moves into the new investment option
If you are unhappy with your super account’s investment return you may consider switching super funds. Depending on the reasons for your dissatisfaction, a simple way to boost your savings could be to move some, or all, of your existing super account balance into another investment option within your current super fund. (If you are keen to change super funds, then see SuperGuide article Fund choice: Comparing super funds in 8 steps.)
Making an ‘investment switch’ could have a positive or negative impact on your long-term investment returns, so it’s important to carefully compare the different investment options within your super fund and understand what they are offering.
For more information on assessing investment performance, see SuperGuide articles:
- Super for beginners, part 20: Comparing your super fund’s performance
- Investment performance: Assess your super fund in 4 steps
- Comparing funds: How does my super fund rate?
- Super checklist: 10 ways to save your super
- Want investments that help you sleep? Understand your risk profile
- Investment returns after retirement: Understanding the 10/30/60 Rule
If you decide to switch investment options, the process is reasonably easy. We explain the process later in this article but before you do switch we suggest you find out the answer to the six questions below.
Six questions to ask before switching investment options
Every super fund has different rules, so check carefully before switching.
1. How often can you change investment options?
Many super funds allow unlimited switches (or at least one switch each day), while others only allow one switch each week. Super funds also monitor investment options for abnormal transactions and can delay, limit or reject a switch request if a super fund believes a member is seeking to make short-term gains, or if the investment switch could have an adverse impact on other members.
2. What are the costs (if any) of switching?
There is usually no administration fee to make an investment switch, but you may incur transaction costs (buy/sell costs) moving between some investment options (particularly shares). (For more information about buy/sell costs, see SuperGuide article, Buy/sell spread costs: Why these charges may shrink your super.) If your investment option includes term deposits, there may be early withdrawal penalties when switching.
3. How is the investment return calculated when switching?
When you switch, investment returns from your old investment option are added to the balance in your new investment option. Before switching, it is worth checking how this return amount is calculated. Some super funds use the daily crediting rate from the day you switch, while others use an exit unit price calculated daily or weekly. For more information on crediting rates and unit pricing, see SuperGuide articles Investment returns: Does your super fund use a crediting rate or unit pricing? and Buy/sell spread costs: Why these charges may shrink your super.
4. When is the switch request processed?
Switching requests are usually actioned at close of business on the day the request is made, but some super funds only action them once a week. There is usually a daily cut-off time (usually 3pm or 4pm) for next-day switching requests. If your request is received prior to the deadline, the switch takes effect the following day. Requests to change the investment option for a pension account may take longer.
5. Can you change your mind?
Many super funds allow you to change a pending switch request. If you submit a second request, this usually overrides the first one, but you will need to check your super fund’s rules. Once your super fund’s deadline for changing a switch request passes, usually it’s not possible to action your revised switch request. A new, separate switching request would then to be made to your super fund.
6. Will you be notified when the switch is made?
Your online account will usually show your new investment option the day after your request is actioned. Super funds usually confirm your switching request by mail.
How to switch investment options
Once you decide you want to change your investment option, it’s a fairly straightforward process. You can:
- Do it online – Login to your online super fund account (you may need to register first) and follow the prompts.
- Fill in a special form and mail it to your super fund– Print off a member investment choice or investment switch form from the super fund’s website or use the one in your member handbook or investment choice guide.
- Use an app – Register with your super fund to download an app for your iPhone, iPad or Android phone so you can monitor your account and make investment changes.
Decide how much super moves into the new investment option
When switching investment options you usually have flexibility in how much of your super account is invested in the new option. You can potentially allocate part, or all, of your super to the new option in the following ways:
- Total account balance and future super contributions
- Current account balance only: All the money in your account right now.
- Part of the current balance: A percentage or dollar amount.
- Future contributions only: Contributions by your employer, rollovers or personal contributions.
- Pension payment option: If you have a retirement income account, you can change the investment option within your pension account
This flexibility allows you to create a tailored portfolio. You can:
- put your total account balance and all future contributions in one option;
- leave your current account balance in one option and direct all future contributions into another option; or
- put some of your current account balance and future contributions into another option.
WARNING: Changing your investment option can have significant implications, so it may be worth talking to a financial planner or your fund’s financial advice team before making a switch.