Superannuation: having two funds can be good for your wealth

Superannuation fund members have long been urged to combine their accounts to save money, but sometimes it pays to double up.

Two nest eggs can be better than one in some circumstances. Picture: iStock

Consolidate! Consolidate! It sounds similar to a scary threats weird-looking robots in Dr Who TV shows, but it’s also the message given to millions of superannuation fund members for many years.

We are often told to consolidate multiple super accounts into one to save money on fees, prevent unnecessary expenses and remove a pile of complexity and confusion.

However, for many people it pays to have more than one super fund, so don’t act like a robot and automatically do away with extra super funds before checking a few things first.

Aussies used to collect super funds like spare change because they often were signed up to a new fund every time they switched employers, but rule changes in 2021 meant our accounts became “stapled” to us when shifting jobs.

Don’t be like Dr Who’s Daleks and exterminate multiple super funds. Consolidating may hurt, too.

However, those rule changes didn’t affect people who already had multiple accounts, and Australian Taxation Office statistics show that in June this year about four million Aussies held at least two super accounts.

While many double-ups may be through forgetfulness or laziness, some are planned as part of a broader financial strategy. Here are four reasons why it may be worth holding more than one super account.

NO INSURANCE FOR YOU!

Life insurance within super is popular because people don’t pay premiums from their own hip pockets.

And as Aussies get older and their health changes, they may find that the insurance they could get when they were younger is no longer approved.

This is why it’s vital for people switching super funds to check that the new fund will offer them insurance. If not, it’s a good reason for keeping the original fund with its existing insurance.

PREMIUM SAVINGS

Still on the topic of life insurance, premiums have climbed dramatically in recent years, so your older policy within superannuation may be a cheaper alternative.

This is a strategy I undertook years ago when switching super funds. I kept the original cover with its lower-cost premiums intact, and then only needed the default insurance in my new fund – saving me money, time and invasive medical checks during the underwriting process.

DEFINED BENEFIT DILEMMAS

Defined benefit super funds used to be the only form of superannuation, with retired members receiving payments for life based on factors including their employment and final salary. They are the reason why Australia has a $225bn Future Fund – to pay the future retirement incomes of former public servants.

Some people with a defined benefit fund will also hold an accumulation super fund – the type of super most Aussies have today – for financial or strategic reasons. They may just want to beef-up their nest egg further.

INVESTMENT STRATEGIES

Super funds are not equal, and some members like to have a second fund because it may offer more investment options such as direct share investment or a much wider choice. Other people hold two funds to be able to separate types of contributions as part of a financial strategy.

And people with self-managed super funds might have a separate industry fund, retail fund on second SMSF to separate super components, hold different assets or prevent future conflicts.

If none of those reasons apply to you and you still have multiple super funds floating around, consolidating is probably a good idea. It’s been estimated that spending just $100 more each year on administration fees in a second fund can cost you more than $25,000 at retirement.

And it’s relatively simple to do. Moneysmart.gov.au says a good way is through your my.gov.au account, or you can contact your main fund directly to help with the switching process.