Guided Investor

How to rollover your super – the right way!

On the surface, rolling over your super fund seems easy. You just send off a rollover form or do it via MyGov and bada bing, bada boom – you’re done! But unfortunately, there is a bit more to it than that.

You see, there can be implications, serious implications, of rolling over your fund. Worst of all, once the rollover has been finalised, you can’t go back. So today I want to take you through the process, from start to finish, and cover off the key points you should be considering.

Prior to rolling over

Prior to implementing any rollover, there are a few things you need to check. Firstly, your insurance cover.

You may have Life, Total and Permanent Disablement (TPD) and/or Income Protection within your existing super fund. If you rollover your balance, this is likely to cancel any cover your currently have in that fund.

Of course, you can apply for replacement cover with your new super fund, but obtaining the cover is not guaranteed!

An application for replacement insurance may be rejected due to medical or occupational reasons. Or you may be offered cover, but on terms that aren’t as good as you currently have with your existing insurance.

There are some group insurance policies out there that can be accepted without going through medical underwriting, however this is not a failsafe! If you go to claim on a group insurance policy, they typically underwrite you at time of claim. This means the cover can be put in force, but you may not get paid out because of a pre-existing injury or condition.

Typically, I prefer a policy which is medically underwritten upfront, and I ALWAYS get the cover in force prior to cancelling an old insurance policy.

Prior to rollover you also want to consider if you have made any member contributions into your super fund which you intend to claim a tax deduction for. If you do, you need to lodge a notice of intention to claim form PRIOR to rolling out.

Once you have rolled over your balance, you cannot go back and make a lodge a notice of intention to claim form retrospectively. If you are on the top marginal tax bracket and you make a $27,500 contribution, this could potentially be an $8,800 mistake!

Then it is also prudent to also consider what you are losing by leaving your current fund. There are some super funds out there which have pretty unique benefits.

For example, take GESB West State Super. This is unique in that it is an untaxed fund which gives you access to the untaxed plan cap. West State Super is closed to new members so if you were to close your current West State Super account, you aren’t able to reopen it…it’s gone for good!

There are also a number of defined benefit super funds out there which can be very beneficial in certain circumstances given that they are not market linked. Rolling out of a fund like this is going to interrupt the defined benefit calculation and you may lose out substantially in the long run.      

Now I am not suggesting that you should never roll out of West State Super or a defined benefit fund, you may have valid reasons for rolling over, but you need to consider the implications first.

There are also some employment contracts which offer you incentives to be with a particular fund. For example, sometimes employers match your extra contributions up to a certain level or sometimes they will help cover fund expenses and even insurance premiums. The extra benefits you receive with being in a specific fund may outweigh any benefit you could potentially get by rolling over.

Thankfully, it is becoming less likely that your employer is linked with a particular fund and this something that ASIC provides pretty clear guidance on. I do believe that superannuation should be portable for everyone so everyone has the choice to choose the fund they believe will best serve their needs.

Finally, if you are considering rolling over an account based pension, just be aware that if your pension commenced prior to 1 January 2015 the Centrelink treatment of your pension will change. Prior to this date, pension accounts were assessed based on a deductible amount. Post 1 January 2015, pension accounts are now deemed. Rolling over will switch you to deeming which may be unfavourable from a Centrelink perspective meaning you could get less government assistance.   

Opening up the new fund

Once you have investigated all of the benefits associated with your current fund, and have still made the decision to move, then it is time to set the wheels in motion.

The first thing you do is apply for new insurance cover. You should do a risk needs analysis to determine how much cover you need given your current financial situation and quote the market to find the most appropriate insurer.

No, your insurance doesn’t have to be with the default insurer offered by your super fund. You have the capacity to quote the market and fund the premium via rollover. If you want to learn more about this, I have done a detailed video in the past. 

Now I would suggest you contact a Financial Adviser to help you with this part of the process. As advisers, we have tools that we can use to assess your options. We can also provide recommendations as to how to best structure your insurances to maximise any tax benefits.

There are a lot of insurers that only operate through the adviser channel, they don’t deal directly with the public. This may mean you may get a much better policy through an adviser. If you want help in this regard, feel free to reach out.

Next you need to open up your new super fund. If you are not sure which fund you should be moving to, I have done a video previously outlining what to consider when choosing a fund.

The general process of opening up a new fund is relatively easy. You will need certain details like your name, date of birth, etc. It is particularly important that you have your tax file number (TFN) available because if you don’t provide your TFN you will miss out on tax concessions within the fund and concessional contributions will incur and additional 32% tax on top of the standard 15% tax.

A lot of funds these days let you open up an account online, but they also often give you the option to fill in and submit a paper application.

If the fund gives you the option to have a binding nomination of beneficiary, and you elect to choose that option, then just be aware that you will need to submit a signed and witnessed nomination of beneficiary form along with your application. Non-binding nominations don’t need to be witnessed.

Once the application has been made, and your new fund is open, you can then implement the rollover.

Implementing the rollover

Like we touched on at the start of this article, you can implement the rollover via lodging a request to rollover form or via MyGov.

If you elect to fill in the request to rollover form, you can send the form directly to the fund you are rolling out of or to your new fund and request that they process the rollover on your behalf. Most super funds will do this bit for you and some even include the rollover form as part of the application.

If you want to do it via MyGov it’s also pretty simple. Just log into your MyGov account, click on ATO linked services, click on Super, in the drop-down menu select ‘Manage’ then ‘Transfer super’. This is probably not the best way to roll over to a new super account as the ATO can be pretty slow in updating the details so it might take a while for your new account to show up.

When rolling to a new super fund, I like to do a partial rollover first. I normally leave $10,000 in the old super fund and rollover the remainder of the balance. Doing it this way has a couple of benefits.

Majority of the money is transferred to the new super fund straight away. This allows you to get the benefits you were seeking by making the move in the first place. It also allows you time to get the new insurance in force and paid for, prior to cancelling the old policy.

In addition, you don’t want to close your old super fund if contributions are still being paid into the account. As soon as you open your new fund, you want to update your employer with the details of your new super account.

I have seen in the past that employers can sometimes be a little slow to update super details, causing the money to be paid into an old account. If that account is closed, the money is generally refunded back to the employer, and they need to redirect it to the new account. Sometimes this gets neglected and the contribution gets lost so you need to follow them up.

To avoid this issue, simply leave a small balance in the old super fund until you have confirmed with your employer that future payments will be made into the new fund.

Once you have confirmation from your employer, and the new insurance cover is in force, you can lodge a second full rollover form to transfer the remainder of your balance.

Just be aware there may be some fees / costs incurred when implementing a rollover. Luckily, exit fees were abolished from 1 July 2019 but there may still be brokerage, or a sell spread when selling down your current investments.

Also, if you have made a capital gain on your investments, then your super fund will pay capital gains tax (CGT). If you are in accumulation phase, the maximum tax rate on a capital gain is 15% however this can be reduced to 10% if the assets were held for more than 12 months.

During the rollover process your money will likely be in cash for a period of time. If markets fall during this time, then it is going to benefit you because you won’t be subject to the decline however, on the flip side, you will miss out on the upside if markets rise.      

Final thoughts

So that’s it, you now know how to rollover a super fund like a professional! However, if that all sounds a little too complicated and you are not sure which fund suits your needs, then feel free to reach out and we can give you a hand.      

Disclaimer

The information in this website is for general information only.

It should not be taken as constituting professional advice from the website owner – Guided Investor as Authorised Representative of Symmetry Group (AFSL 426385)

You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your unique circumstances.

Guided Investor is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this document.

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