Making Prudent Superannuation Decisions

For many Australians, superannuation is the primary retirement savings they have. However, average superannuation balances are far below what they should be to ensure a comfortable standard of living in retirement.

In fact, the Australian Bureau of Statistics (ABS) shows that average or mean superannuation balances during 2011/12 for members aged 60 to 64 were just $197,054 for men and $104,734 for women. Similar results were found for the next youngest age group of men and women, 55 to 59 years in age, with mean superannuation balances of $203,909 and $91,216 respectively.

Making prudent decisions in relation to superannuation benefits when leaving an employer, can help ensure that superannuation savings are optimised and not unnecessarily eroded.

Employers are required to make final superannuation contributions owing to departing employees, pro-rated to the date they leave. These can include: Superannuation Guarantee (SG) contributions, payable at least quarterly, Voluntary employer contributions (above the SG level), usually paid with other employer contributions and Salary sacrifice contributions, usually paid with other employer contributions.

Final contributions could be made when the employee leaves the organisation or later when the employer makes contributions.

Leaving an employer can also be an opportune time to ensure that all superannuation accounts are consolidated. It can be much easier for estate planning if a member has only one nomination of beneficiary to worry about and all investments are captured in the same place.  But, before consolidating, a member needs to ensure that insurance arrangements will not be affected. I.e.:  Making sure insurance benefits are available in the fund consolidating to, particularly if one is not in the best of health. Secondly, members should also be conscious of differences in insurance policy definitions between superannuation funds. I.e.: A member might be reclassified in terms of their occupation as a result of changing jobs.

Alternatively, the key advantage of remaining with a superannuation fund when changing jobs is that the member may not be subject to a new underwriting process. A continuation option allows members to continue their insurance through a direct arrangement with their insurer without the need for a medical check. Generally speaking, members get 60 days to exercise that option from leaving an employer. The arrangement then becomes a retail offering directly with the insurer. The insurer will take it on with the same terms but there will likely be a change in rates — potentially from a group insurance rate to an individual insurance rate,

A word of warning – individuals who leave a superannuation fund in an inactive state when leaving an employer will probably be transferred to a default option. The implications of that are that any insurance may be cancelled or lost or a lower level of default insurance offering may be provided. In addition, members will likely be moved into a default investment option.