Super Consolidation vs Keeping Multiple Funds: Pros, Cons, and Strategy

For many Australians, superannuation is one of the most significant investments they’ll ever make. Yet, it’s not uncommon to have multiple super funds, often accumulated from different jobs over the years. While consolidating your super into a single fund can simplify your finances, there are situations where keeping multiple funds might be the better choice.

This guide explores the pros and cons of super consolidation versus maintaining multiple funds, helping you make an informed decision that aligns with your financial goals.

What is Super Consolidation?

Super consolidation involves rolling over all your superannuation accounts into a single fund. This process is designed to simplify your super management, reduce fees, and make it easier to track your retirement savings.

The Pros of Super Consolidation

1. Lower Fees: Each super fund charges fees, including administration, investment, and insurance fees. By consolidating your super, you eliminate duplicate fees, which can save you thousands of dollars over time.
2. Easier to Manage: Having a single super fund makes it easier to track your balance, monitor investment performance, and manage contributions. This simplicity can reduce the risk of losing track of your super accounts.
3. Improved Investment Growth: Consolidating your super can increase the overall balance in your account, giving you access to a wider range of investment options and potentially better returns.
4. Avoiding Lost Super: Many Australians have lost or unclaimed super sitting in inactive accounts. Consolidating your super ensures all your funds are working for you, rather than being eroded by fees.

The Cons of Super Consolidation

1. Loss of Insurance Benefits: Some super funds offer valuable insurance benefits, such as life, total and permanent disability (TPD), and income protection cover. When you consolidate, you may lose these benefits, especially if you close a fund with superior insurance coverage.
2. Exit Fees and Tax Implications: While most super funds no longer charge exit fees, some may have costs associated with transferring your balance. Additionally, if you have investments in a fund that need to be sold during the rollover, there could be tax implications.
3. Diversification Risks: Keeping multiple funds can provide diversification across different investment strategies and fund managers. Consolidating into one fund may reduce this diversification.
4. Defined Benefit Funds: If you have a defined benefit fund, consolidating may not be in your best interest. These funds often have unique benefits, such as guaranteed income in retirement, which could be lost if you roll them over.

The Pros of Keeping Multiple Super Funds

1. Diversification: Having multiple funds allows you to diversify your investments across different asset classes, fund managers, and strategies. This can reduce risk and improve overall returns.
2. Retaining Insurance Benefits: If one of your funds offers superior insurance coverage, keeping it open ensures you maintain those benefits. This is particularly important if you have pre-existing health conditions that may make it difficult to obtain new insurance.
3. Specialised Funds: Some super funds cater to specific industries or professions, offering tailored benefits, lower fees, or unique investment options. For example, industry funds like HESTA (for healthcare workers) or HOSTPLUS (for hospitality workers) may provide advantages that general funds don’t.
4. Defined Benefit Funds: As mentioned earlier, defined benefit funds often come with unique perks that are worth preserving. Keeping these funds separate ensures you don’t lose these benefits.

The Cons of Keeping Multiple Super Funds

1. Higher Fees: Each fund charges its own set of fees, which can add up quickly. Over time, these fees can significantly erode your retirement savings.
2. Complexity: Managing multiple super accounts can be time-consuming and confusing. It increases the risk of losing track of accounts or missing important updates.
3. Risk of Inactive Accounts: If you’re not actively contributing to a fund, it may become inactive. Inactive accounts can be transferred to the Australian Taxation Office (ATO), where they may earn minimal interest.
4. Duplication of Investments: Having multiple funds doesn’t always mean better diversification. In some cases, you may end up with similar investments across funds, reducing the benefits of diversification.

How to Decide: Consolidation vs Keeping Multiple Funds

The decision to consolidate or keep multiple super funds depends on your individual circumstances, goals, and preferences. Here are some key factors to consider:

1. Compare Fees and Performance: Use tools like the ATO’s YourSuper comparison toolto evaluate the fees and performance of your funds. Consolidating into a low-fee, high-performing fund can maximise your retirement savings.
2. Review Insurance Coverage: Check the insurance policies in each fund to ensure you’re not losing valuable coverage. If you decide to consolidate, make sure your chosen fund offers adequate insurance.
3. Consider Your Investment Strategy: Think about your risk tolerance and investment goals. If one fund offers a better investment strategy or aligns more closely with your goals, it may be worth consolidating into that fund.
4. Check for Defined Benefit Funds: If you have a defined benefit fund, seek professional advice before making any changes. These funds often have unique benefits that are difficult to replace.
5. Seek Professional Advice: A financial adviser can help you assess your superannuation accounts, compare options, and create a strategy that aligns with your retirement goals.

Final Thoughts

Superannuation is a cornerstone of retirement planning, and managing it effectively is crucial for securing your financial future. While consolidating your super can simplify your finances and reduce fees, keeping multiple funds may be beneficial in certain situations, such as retaining insurance benefits or defined benefit schemes.

The key is to evaluate your individual circumstances, compare your options, and seek professional advice if needed. By taking a proactive approach to your super, you can maximise your retirement savings and achieve greater peace of mind.

If you’d like to review your superannuation strategy or explore whether consolidation is right for you, click here to schedule a complimentary consultation with an EPG Wealth adviser.

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