One of the surprising things with superannuation is the lack of engagement people have with it.
It is not until retirement begins to appear on the distant horizon that many start to become more interested in how healthy, or otherwise, their retirement nest egg is looking.
One of the problems that has emerged with super over the years has been the proliferation of individual accounts. It was not uncommon for a person to have several individual accounts.
Each time a person changed jobs; a new super fund would be opened. This led to duplication of super accounts and with that, the duplication of fees and often, insurance cover.
However, in recent years the trend for people to have multiple accounts has been trending down which, for the most part, has been a good thing.
Recent changes to superannuation law now requires an employer to look for existing superannuation accounts before simply paying their new employees’ super to the employer’s default fund.
In addition, superannuation laws specifically require superannuation funds to identify and consolidate multiple superannuation accounts held by their members. This is referred to as intra-fund consolidation.
A recent review carried out by the Australian Securities and Investment Commission (ASIC) found that three out of nine trustees of superannuation funds did not have policies in place to identify members with multiple accounts. ASIC is working with super fund trustees to increase compliance in this area.
While the idea of consolidating super and eliminating multiple accounts will be desirable, there will be occasions where having more than one superannuation account is either necessary, or desirable.
Superannuation benefits will generally comprise of a taxable component and a tax-free component.
When it comes to estate planning, there may be value in making non-concessional contributions (which form part of the tax-free component) to a separate accumulation account thereby quarantining then from taxable superannuation benefits.
Often superannuation fund membership will include life and total and permanent disablement insurance cover. And, in many instances, this cover has been included without the need for the member to meet any medical requirements.
Therefore, for a superannuation fund member that has multiple superannuation accounts with embedded life insurance cover, and their health makes it unlikely they can obtain insurance either at all, or at an affordable price if they were medically underwritten, holding more than one superannuation account with life insurance attached can be a bonus.
There will be situations when consolidating superannuation accounts either cannot be done, or doing so would not be in a member’s best interest.
The obligations imposed on superannuation funds to consolidate their members multiple accounts into a single superannuation account may be contrary to some of the strategies that have been specifically structured to obtain a particular outcome.
With that in mind, it is important to pay attention to any correspondence you receive from your superannuation fund as reinstating a former situation, particularly if intra-fund consolidation has occurred, may be difficult and very time consuming.
Having a financial planner on your team can be worth its weight in gold when navigating the complexities of superannuation.