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I get asked to write for Adviser Ratings in the “Ask an Adviser” section from to time to time, where anyone can ask a question and I will be answering them. This one was a question asked by a Toby from Sydney about the Barefoot Investor (ah~ another one!). The original article was published here.
I’m currently with REST super and I’m thinking of switching to Hostplus – are there any tax or insurance issues I need to be aware of before switching?
Toby from Sydney
Top answer provided by: Nicole Niu
It is impressive that you think of potential tax and insurance issues when you consider switching your super fund! You are right about having those concerns, as it could have unintended consequences on your financial situation. I am assuming that you’ve read The Barefoot Investor book, which suggested a low-fee superannuation fund, being HostPlus (Is that right? Please correct me if not) Here are my notes:
- The suggestion of HostPlus super is general in nature, and may not be suitable for your circumstances. You could be employed by a company which only makes employer contributions to REST Super. You may have developed a medical condition while being covered by a REST policy and not by any other new policies, including HostPlus. You could have a default level of insurance that’s nowhere near what you would need in an actual personal crisis. Scott Pape’s guide on how to calculate the level of insurance you need is a great starting point; however it does not answer the 3 critical questions: 1. How much money do you need in a personal crisis? 2. How much money do you have access to? And 3. What’s the “gap” for which you need to insure yourself?
Personal insurance is a highly complex area. It’s always a good idea to check with an adviser and discuss your insurance arrangement.
- To switch super between industry super funds does not usually have direct tax implications as a “rollover” within the superannuation system. But the important question you should ask is “why do I want to switch my super fund?” Is it because there’s a lower fee? Or is it because someone told you “fund A’s return is better than fund B’s”? Think of a super fund as a mobile phone case and the retirement money as the phone inside that case. These days, you can get a phone case with all the bells and whistles, but would you buy an iPhone (or Samsung or other brand) because it has a nice case? No, you wouldn’t. You buy a smartphone because of the technology packed inside, not the phone case. It’s the same with your super fund. The important part is where your money is being invested (underlying assets), not which super fund (platform) is holding it. A super fund is a tax structure holding your money, just like a smartphone case that holds your phone. Having your super with fund A or B does not mean you are investing in company A or B. In fact, you could even be investing in the same underlying assets held by the two different super funds. In other words, if the underlying investment and all the other conditions are the same, and fund A costs less than fund B, then it makes sense for you to choose fund A. This is called a “like-for-like” or “apple-for-apple” comparison and a good adviser knows how to explain it.
- What if the underlying assets are different, you might ask? This brings me to my last note to you, which is the most important function of your super – and that’s to invest in preparing for your retirement! There is no “one size fits for all” investment solution. Depending on your age, family situation, home ownership, expected retirement income and tolerance of risks, you need an adviser to help you decide which investment is right for you. Most of my clients’ biggest money concern is that they won’t have enough money to retire on. We can help you with this by setting things right at an early stage and coaching you to spot good opportunities when they arise.
I know this is a lot for you to take in, but I’m more than happy to find out a little more about you and to answer your questions. If you like, contact me to book a quick 15-minute phone chat, so that I can help you better with your query.