Question
We are a married couple in our 40s with about $160,000 each in superannuation.
We have been with Plum Super since we moved to Australia about 13 years ago but we are looking to switch to AustralianSuper to chase better returns.
We only have the standard death and disability insurances within Plum, but we’re wary of what cover we might lose in the switch.
What questions do we need to ask of a new fund before we start the process?
Answer
There are a few issues to consider before making the move. There are a number of variables that determine a super fund’s performance.
In order, the first is the asset allocation — or which investment sectors your superannuation money has been invested in.
In very simple terms, these can be categorised into business investments that are typically done through listed shares, commercial property through a combination of directly held properties and ASX-traded property trusts, and credit or other income assets such as government and corporate bonds.
Each sector performs differently with different risk profiles. The asset allocation is the main determinant of the risk-return outcome.
It doesn’t help that there are no set rules over what asset allocation a particular investment option must follow. For example, one super fund’s Capital Stable investment option might have a very high exposure to risky assets such as shares compared to another fund’s Capital Stable option. The first fund’s performance may appear spectacular, until an unexpected market correction occurs.
Before jumping ship, line up the asset allocations between the two funds and see how they compare. A simple change of the investment option with your existing fund might provide a comparable rate of return to the new fund.
The next determinant of performance will be the specific investments the fund manager(s) have selected. The skill and expertise of portfolio management should not be underestimated and, in many cases, the work of individuals and teams within a fund manager can set one fund apart from the other. Financial planners often look into this level of detail when recommending funds.
The last determinant are the fees and costs, and while some super funds are keen to promote low-cost as being important, a cheap super fund is certainly not a guarantee of a better outcome.
In many cases the “cost” of a low-fee scheme is very ordinary customer service when trying to make changes or accessing your money. In my view, these days you should expect to pay no more than about 1.3 per cent all-up in fees.
The next step in switching funds is to ensure that the insurance components can be transferred to the new fund, without any medical evidence. This normally requires you to provide confirmation of existing cover to the new fund and the new fund should provide written confirmation that cover can be transferred.
Insurance is one area where you can often see some difference in costs and this can be a factor in changing funds.
All up, you might discover that a change of funds will not automatically see you better off. It might simply require a few tweaks to your existing fund.
Question
My grandmother has just passed away, leaving my parents a one-third share of her estate.
My parents receive a part-pension from Centrelink but say they don’t need the money.
They have come to us and offered to give us their share. Does this money need to be declared on our tax returns?
Answer
No. A distribution of the capital like this is not assessable income, but there is another problem.
Unfortunately, your parents’ well-intentioned gesture is captured under Centrelink’s deprivation — or “gifting” — rules.
In essence, the day your parents become entitled to receive their share of the estate is the date that the assets will be captured under the means-testing system.
If they give you the money, it will continue to be assessed for five years from the date of the gift.
Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association