Be very careful when considering to consolidate your Super. Getting all your eggs in the one basket isn’t as ‘easy’ as some may suggest. Read on for a real example of the possible costs…
Superannuation Statement season has just passed and I urge you to take care with the offers of ‘easy super consolidation’ that are often enclosed.
Whilst there is sure to be information included about what you might gain from such a change, it is not possible for the friendly super fund to know exactly what you might lose in the process.
Take my client’s Craig & Emma* for example. Emma is now pregnant with their first child and although they have re-drawn for home improvements, haven’t really paid much off their fairly new mortgage. Their goal was obviously to make sure that the family is protected if something was to happen to Craig.
Craig has had quite a few jobs and with each new one, a new super fund was set up, each of them with the “default” life and total and permanent disablement (TPD) insurance. Craig had considered the offer from a Super Fund to “clean–up” and consolidate to one fund, but luckily he sought advice before proceeding.
Had Craig accepted these offers or tried to consolidate the funds himself, he may have ended up severely underinsured and unable to adequately protect his young family.
You see, Craig has been an insulin dependent diabetic since a teenager, and while he is well used to managing the condition now, it is likely to prevent him from ever getting replacement TPD cover. Replacement life cover can be arranged but would cost up to 5 times more than normal.
So it appeared he would be stuck with all these funds so he could keep the existing insurance in place, the total cover for Life and TPD being about right, although some of the funds insurance had “pre-existing condition” clauses, so we weren’t even 100% sure that they would pay a claim.
Craig has met his goal of consolidating his super, but also knows that the mortgage will be repaid and additional funds left over to support the family if he passes away or is totally disabled!
This is just one example of what could be lost in what might seem a fairly simple decision – consolidate my super.
As usual, the advice is – for any significant change in financial circumstances – seek qualified advice.
- Clients’ names have been changed for privacy purposes