By some estimates, there is around $20.8 billion in lost and unclaimed super in Australia. The last financial year saw $4.38 billion worth of lost super reunited with their owners across 537,000 accounts. While consolidating super is one of the easiest ways to reduce fees and increase the money available for retirement, recent analysis by ASIC shows that it needs to be done in an appropriate way for members to gain benefits. For example, it found evidence that some entities were charging high fees for consolidating super or not giving due consideration to insurance needs.

How is lost super found?

The primary tool that super trustees have to assist consumers to consolidate their accounts is the ATO’s “SuperMatch2” service. It enables super trustees and other entities authorised by trustees to obtain a list of active super fund accounts, including lost member accounts and ATO-held monies, that belong to their members or clients.

Fees for consolidating super funds

The “SuperMatch2” service is misused by certain parties by creating advertisements for lost super searches as a tool to gain new business, charging high fees to consolidate super accounts, or consolidating accounts without due consideration to insurance or performance of the funds.

ASIC notes that in the course of its work with the ATO, it has seen services which were marketed as “free lost super and consolidation services” by financial advisers, trustees, and fund promoters that typically erode a member’s super balance by $500 to $1,000 in advice fees.

Potential downfalls of consolidating superfunds without proper advice

Other concerns in the area of inappropriate consolidation of super include:

• Advisers opening a transitional “staging super account” to consolidate recovered funds before monies are moved to the client’s fund of choice (which may never happen), with advice fees being deducted from the staging account;
• Providers using high pressure sales tactics or forged signatures, leading to members being unable to give informed and legitimate consent to the consolidation;
• Issues with fees for no service when advice providers offer an upfront consolidation service, then charge an ongoing asset-based fee with no further service or receiving monies to which they have no entitlement in other ways; and
• Providing members with a lack of balanced, or even misleading information about the benefits and risks of consolidations including the potential loss of an insurance cover that may not be able to be reinstated at the same cost or at all in the consolidated fund.

The ATO has also taken steps to increase oversight of trustees’ use of “SuperMatch2” and will remove access from entities where there are concerns.

Preserving effective life insurance

One of the hidden costs of consolidating super accounts without proper advice is the risk of losing access to an effective life and/or total permanent disability insurance policy.

Most funds automatically provide life (and TPD) insurance for members (subject to recent changes for members under 25 or with low account balances), as well as offering the choice to upgrade or change insurance policies. Unless you have had the unfortunate need to claim on these policies, it’s easy to forget about them, especially since they are often “just there” and do not have any day-to-day cash flow impact for you personally.

However, by consolidating your super accounts, insurance policies previously held in any accounts that are closed will be cancelled. If you have had a change in health circumstances or it has simply been a number of years since your policy was originally taken out, you may find it difficult or impossible to take out a new policy that will cover you in full, and the cost of your new policy may be significantly higher than your existing policy. Your financial advisor will be able to assist in deciding the best way to consolidate your super without adversely affecting your insurance cover.

It is also important to know that not all insurance policies are made equal! It is always best to obtain personalised advice from a trusted financial advisor or insurance broker to compare policy details and determine which policy is best for your circumstances.

Ways you can reduce the risk

While it can be beneficial to consider appropriate consolidation and being able to locate lost super and save fees, there may be risks involved. The best approach is to:

• Be aware of the risks, types of scams and ways people will try to inappropriately profit from you;
• Do accurate research and understand your options;
• Keep records of your super and any transactions you enter into;
• Use free services offered by the ATO or myGov wherever possible; and
• Enlist the help of a trusted financial advisor.

Thinking of consolidating your super?

If you think you may have lost super, its easy and free to check with the ATO or through myGov. From there, we strongly recommend you enlist the help of a trusted financial advisor so you can understand the true costs and benefits of consolidating and make an educated decision about how best to reunite your various sources of retirement funds. Catalyst Financial can assist by clarifying the process with you or referring you to a trusted financial advisor within our network.