Consolidating super accounts: What to consider first

Are you one of the 3 million Australians that have 2 or more super accounts? According to the ATO, of the 16.5 million Australians that had superannuation in 2022, the vast majority (76%) have only one account, but there are still 18% that have 2 accounts, 4% that have 3 accounts and 1% that have 4 or more super accounts.

The good news is that the number has decreased since 2017 when only 61% of Australians had just one account.

Why does this matter? The simple answer is that multiple accounts will cost you more in fees and reduce your retirement savings.

What is the potential cost of having multiple super accounts?

While some people choose to hold more than one account, the 2018 Productivity Commission (PC) report into superannuation estimated that more than a third of all super accounts are unintended multiple accounts and these cost a total of $2.6 billion every year in fees. And that’s not counting the cost of multiple insurance premiums.

One major problem of multiple super accounts identified by the PC report is so-called ‘zombie’ insurance. These are insurances, like income protection, which can only be claimed through one policy. So if you have multiple accounts you are paying premiums for insurance that will never pay out.

The Productivity Commission report states: “The chief and costly culprit for such zombie policies is income protection, which can typically be claimed against only one policy and only when members are working. A typical full-time worker can expect insurance to erode their retirement balance by 7% ($60,000) if they have income protection cover, compared to just 4% ($35,000) if they only have life and disability cover.”

These costs are exacerbated by foregone compound returns. The Productivity Commission’s report cited the example of a worker with two accounts across their working life who will end up over 6% (or $51,000) worse off at retirement compared with a worker holding just one account.

On a positive note, reforms to insurance in super made in 2019 have reduced the impact of ‘zombie’ insurance. If a super account is inactive for 16 months or more the insurance cover it contains must be cancelled unless you tell the fund you want to keep it.

How do people end up with multiple super accounts?

Many people lose contact with their super funds when they change jobs, move house, or simply forget to update their details. In the past, people also often got a new super account each time they changed their job and they let their new employer choose the fund.

A new law was introduced in June 2021 so that super contributions must be paid to your ‘stapled’ fund when you start a new job and don’t make a choice. Your stapled fund is usually the one that has most recently received super contributions for you.

Before you consolidate your super accounts

There are a couple of things to consider before you consolidate your super accounts.

1. Check you won’t lose any necessary insurance coverage

There are three main types of insurance products offered through super.

• Death cover, or life insurance, which pays a lump sum or income stream to your beneficiaries if you die.
• Total and permanent disability insurance covers you if you become seriously disabled and are unlikely to work again.
• Income protection insurance pays an income stream if you are temporarily unable to work.

Check you won’t lose any valuable insurance cover from the fund that you are leaving. Some funds offer members insurance cover that can be difficult – and expensive – to obtain elsewhere.

2. Choose which super fund will be your main account

Check the details of each of your accounts to decide which fund best suits your needs and objectives. ASIC’s MoneySmart website makes this suggestion: “When consolidating your super, don’t just choose the fund with the highest balance. The best fund for you may be one of your small accounts, or a completely new fund.”

The easiest way to consolidate your super accounts

It is now very easy to consolidate your super accounts if you have a MyGov account.

You can only transfer the full balance from one super account to another super fund using MyGov. You will need to contact the super fund directly if you wish to transfer part of the balance.

If you do not have a MyGov account, you can complete the ATO’s rollover request form. Alternatively, your receiving super fund may also be able to process the transfer for you.