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Why multiple retirement funds are a bad idea

Mutiple super funds

If you’re one of the 8 in 10 Australians who have multiple super accounts, you’re allowing your money to line the pockets of fund managers rather than fatten up your retirement fund.

A recent survey by a not-for-profit super fund found that 80 per cent of Australians were paying multiple sets of fees on multiple retirement funds – accounts that they didn’t need and often weren’t even aware they had. More recently, the Australian Tax Office (ATO) revealed there was $17 billion in lost and unclaimed super sloshing about. It seems that we’re a nation of people who become outraged if our bank charges us a $2 fee for using a foreign ATM but think nothing of paying $200 worth of fees for multiple retirement accounts.

The multiple account trap

People don’t set out to have multiple super accounts. They switch jobs (and we’re all switching jobs a lot more often nowadays) and their new employer directs nine per cent of their wages into a new super account. Now there are two accounts – an active one and one that isn’t having any new money put into it but is still having management fees taken out. Switch jobs every couple of years and it’s quite possible to end up with multiple retirement accounts while you’re still in your mid-30s and retirement seems so far off that it’s not worth paying attention to what’s going on with your super.

What to do?

The ATO has a SuperSeeker page on its website that, once you’ve punched in your name, date of birth and tax file number, displays:

  • All the super accounts to which you have made a contribution in the previous two financial years.
  • All lost super accounts in your name that super funds have reported to the ATO.
  • Any super money the ATO is holding for you.

You can also contact old employers to find out where they paid your super entitlements or check out the ASIC Lost Monies Register or one in your state if you’re searching for old super accounts.

Consolidation pros and cons

Consolidating your multiple retirement accounts, which usually involves an hour or two of paperwork notifying various super funds that you want to roll all your money into one particular account, is almost all upside in that from now on you’ll only being paying one set of fees. But there are two downsides that you need to be aware of. First, the funds you’re getting out of may charge exit fees. Second, super accounts often come with insurance policies automatically attached, particularly relating to death or permanent disability. If you have multiple super accounts and the worst happens, you can receive multiple payouts; if you have one account, you only receive one payout.

Be aware that changing jobs doesn’t automatically mean changing super funds. You’ll generally be able to arrange for your new employer to pay contributions into an existing account. Taking this option will save you the money and tedious paperwork involved in managing or consolidating multiple retirement funds.