Consolidating your super? Read this first
Let me start by painting a typical scenario I faced recently. A couple wanted to buy an investment property. Their mortgage broker advised them that they were on the margin of getting the loan but needed to show more assets. He suggested they update the information and values of their numerous superannuation funds and to see me for help.
The clients decided they can do it themselves and save some money, which is fine by me, as I like clients to take ownership and be proactive. I pointed them in the way of www.unclaimedsuper.com.au and www.ato.gov.au/superseeker, which are two sites helpful in tracing lost super. I expected them to come to me with a list of the values and for advice on the next step.
Instead of researching and finding the current values, they took up the offer of a fund to consolidate all their accounts into one – on a no-advice basis of course! Just “a few simple forms” they were told. So, they completed the standard, government-provided “whole of balance transfer” forms, and the process got underway.
At this point, they came to see me about insurance. With the extra debt they are taking on, they would need a backup plan such as a life and income protection insurance in place.
So, I started collecting data for their insurance options. Now, the husband is fairly chubby like me, and the wife has ongoing medical treatment with her back after a fall from her mountain bike a few years ago.
Knowing that he would be heavily loaded for life cover and struggle to be accepted for income protection—and she would have a spinal exclusion at a minimum—I asked if they had any cover currently in their superannuation funds or standalone.
It was at this point she mentioned that the consolidation process had started. Upon checks with their old superannuation funds, I discovered he had $350,000 in life and total permanent disability (TPD) and $4300 per month salary continuance in his old employer fund. She had life and TPD cover in an industry fund. Both were consolidating to a different fund. Imagining losing all that!
In this instance we were very lucky. We were able to contact the funds with insurance in them and cancel the transfers, as they had not been finalised.
We then tried to get cover with the superannuation fund that they were consolidating to. But once the details of their conditions were disclosed, the insurers rejected them outright.
We eventually negotiated some restricted salary continuance cover for her with the expected spinal related injury exclusion. We agreed to maintain the funds with insurance already in place.
Although they were unable to cover the amount they needed, it was still a comfort for them to have a safety net to some degree rather than nothing.
The lesson I am trying to get across is that you must look at the full package when dealing with your superannuation, and consider all the benefits that are included rather than making a decision to consolidate on investment returns and fees alone.
Always assess your insurance needs, and if you need the cover, try and replace it in your chosen fund or elsewhere before consolidating your balances.
What’s that old saying? Act in haste and repent at leisure!