How to change your investment option: 6 points to check before you switch

Super funds offer their members a range of investment options designed to suit different risk tolerances and savings goals. (For more on risk tolerance, read SuperGuide How to grow your super: Know your risk profile.)

When you joined your super fund, if you didn’t select a particular investment option, you will have been placed in the fund’s default investment option.

This default investment option may or may not suit your particular risk tolerance and retirement savings goal, so you may need to choose a different option.

But it’s important to remember making an investment switch can have a positive or negative impact on your long-term investment returns. This makes it essential to carefully compare the different investment options within your super fund and understand what each one offers.

For more on assessing investment performance, see the following SuperGuide articles:

• Understanding the dynamics on which your super fund invests
• Super investing: What is your risk profile?
• Super investing: Should you change your investment option?
• Does your super fund disclose what you are investing in?
• Annual super fund performance Reckoner: Annual returns for 5 investment categories
• Super investing: How to change your investment option
• How to review your super fund
• The 10/30/60 rule: What it is, and how it can help your retirement plans

Six questions to ask before switching your investment option

If you decide to switch your investment option, the process is reasonably easy.

Before you switch, however, ensure you know the answers to the following questions so you understand the implications of your decision.

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 it believes a fund member is seeking to make short-term gains, or if the investment switch could have an adverse impact on other fund members.

2. What are the costs (if any) of switching?

Often your super fund will not charge you an administration fee when you make an investment switch, but you may be charged transaction costs (such as a buy/sell spread) when moving between some investment options (particularly shares). If your investment option includes term deposits, there may be early withdrawal penalties when switching.

For more on buy/sell costs, read SuperGuide article, Super fees: What are buy/sell spread costs?)

3. How is the investment return calculated when switching?

When you move your account balance between investment options, the investment returns from your old investment option are added to the balance in your new investment option.

Before switching, it’s important to check how the investment 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, read SuperGuide articles Super investing: What is unit pricing and a crediting rate? and Super fees: What are buy/sell spread costs?.

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 a daily cut-off time (usually 3pm or 4pm) for next-day switching requests. If your request is received prior to the cut-off deadline, the switch between investment options 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 the cut-off time for switching requests has passed, it’s usually not possible to revise your switch request. A new, separate switching request will need to be made to your super fund.

6. Will you be notified when the switch is made?

Your online super account will usually show your new investment option the day after your request is actioned. Super funds often confirm a 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.

What are the options for switching my account balance?

When switching investment options, your super fund is usually pretty flexible about how much of your super account you place in your new investment option.

Normally, you can allocate part – or all – of your super account to your new investment option. Your allocation choices are likely to be:

• Total account balance and all 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.

These choices mean you can create a tailored investment portfolio to suit your financial circumstances. 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
• Put some of your current account balance and all future contributions into another option.