Chances are everyone will change super funds at least once in their life – if for no other reason than to set up an SMSF. Quite apart from choosing the new fund, there is lots to think about before making the move.
Many of these are relevant no matter what the move looks like – one public fund to another, from a public fund to an SMSF or even back the other way when the SMSF is being wound up.
A topical one right now applies to those who want to claim a tax deduction for some or all of the personal super contributions they’ve made to their existing fund. There is paperwork to do to lock in this deduction and it has to be done before moving funds. For example, Anna contributed $10,000 to super in 2022/23 and also a further $2,000 in 2023/24. She wants to claim a tax deduction for both but she also wants to move all her super to a new fund in September 2023.
She must do the paperwork for both lots of contributions totalling $12,000 before she changes funds. In fact, not only does she need to have filled in the relevant forms herself (known as a “Notice of intent to claim a tax deduction” or a “Section 290-170 notice”) but she also needs to make sure the trustee of her fund has acknowledged her notices. Without that acknowledgment, the tax deduction won’t be valid. And unfortunately once she’s changed funds, she can’t change her mind about the tax deduction and vary it. If she’s not sure how much she’ll want to claim in 2023/24, she might even be better to:
- drop the idea of claiming a deduction for the $2,000 she contributed to her old fund in 2023/24,
- put in extra contributions in her new fund once she’s moved there, and
- only claim a tax deduction on contributions to the new fund.
It’s also important to double check what will happen to insurance benefits when moving from one fund to another. If Anna is moving to an SMSF, there would be nothing to stop her setting up insurance in her SMSF and making sure everything was in place before she gives it up in her old fund. That protects her against the possibility that she can’t actually get the cover she was expecting in her new SMSF, or can get the cover but discovers it’s much more expensive. In fact, some people keep a small balance in their old fund just to keep the insurance running forever if they can’t get exactly what they want at the right price in their new fund.
Many members put “binding death benefit nominations” in place for their super. These are legally binding instructions that the trustee must follow when paying out super for a member who has died. Remember they are fund specific so if they’re to continue they will need to be replicated in the new fund. It also pays to think about whether the instructions should change in a new fund. For example, it is common to have a binding death benefit nomination in a public fund. Afterall, who wants a trustee they don’t even know making decisions about who gets their super? But sometimes members of an SMSF don’t do this. If their spouse is also a member of the SMSF and will effectively inherit control on the member’s death, it may be preferrable to leave the spouse with some autonomy when it comes to dealing with the death benefit.
There can be costs involved in leaving one fund to move to another. For example, some public funds allow the members to choose specific investments for their super. A member who leaves this fund will be charged capital gains tax if these assets have grown in value – meaning the amount rolled over to the new fund is smaller than expected. That happens even if the member is actually transferring the assets “in specie” to their new fund (rather than selling them and transferring the cash). While it might feel like there’s been no “sale” (which is what usually triggers capital gains tax), there’s still a transfer to a new owner which is the same thing from a tax perspective.
This is definitely the case when moving all the money from an SMSF to a public fund as the SMSF will need to sell its assets and wind up (incurring costs). It’s important to understand what these costs will be when moving funds to avoid nasty surprises. It’s also worth noting that in an SMSF, these costs can sometimes be minimised by managing the transition over several years.
Finally, there are good strategic reasons why many people have their super split between several different “accounts” in retirement (for example, multiple pensions and an accumulation account). Be careful in moving from one fund to another “all at once” because the accounts will be mixed up if they are all transferred into the same account in the new fund. That can unwind years of careful planning. With good up front planning it’s easy to avoid this outcome – simply manage the transfer progressively.
In fact that’s the theme of any transfer from one super fund to another – careful planning up front can make the world of difference. Don’t be too trigger happy when it comes to initiating the transfer via myGov!