Right now, it seems every day the markets are dropping, along with your super balance. You might be looking at your statement and wondering if moving your retirement savings to a different investment option or super fund provider might be the answer.

While there are no industry-wide figures available at the time of writing, super funds are reporting higher than usual levels of members switching investment options1, moving billions of dollars into cash or to another provider. But depending on your circumstances, that might not be the best move.

In this article, we explain the difference between moving super funds and switching investment options, and some things you may wish to consider before you take any action.


Transferring your super to a different provider

This means taking your superannuation out of your existing fund and moving it into a new fund with another provider.

2019 saw superannuation enter a record-breaking decade of gains2. So the impact of the COVID-19 coronavirus on markets, and subsequently your super balance, might feel magnified. If you’re thinking of rolling your retirement savings into a new super fund with another provider, you might want to think about comparing more than just performance.

Insurance coverage, fees and investment options are worth researching, to help you understand the impacts of transferring your super. And, if you have an old-style defined benefit fund, it may be particularly important3  to avoid any hasty decisions as you’ll be unlikely to find similar terms in a new fund.

Remember, too, that if you’re transferring your super to another provider, but keeping your investment options the same (eg going from one conservative option to another), this may not help you achieve your objectives of moving in the first place.

Tax implications can be complicated

Depending on a range of factors, many that will be unique to your own circumstances, transferring your super to another provider may lock in any losses and unfavourable tax components within your retirement savings. And it gets more complicated the closer you are to retirement. Because of this, it’s important to seek advice from a financial adviser or the ATO before you decide.

Switching investment options

This means staying with the same superannuation provider but switching the type of investment options your retirement savings are invested in.

While the investment options differ from fund to fund, most offer options such as conservative, balanced, growth and high growth. As the names indicate, the risk and return profile of each option is different.

It’s worthwhile checking what type of superannuation investment product your retirement savings are invested in. Around 80% of Australian super accounts are invested in their fund’s “default option”4, this means funds are being managed in a balanced investment approach. For most Australians, while your super may have some exposure to higher-risk assets, this would be balanced by lower-risk assets.

Diversified funds, for instance, are made up of assets other than shares, like buildings and other infrastructure (which are still susceptible to fluctuations). So, with diversified or balanced options (if your investments span across a wide range of categories) it means a 25 per cent decline in the stock market doesn’t necessarily equate to a 25 per cent decline in your super balance.

There’s time for the market to recover

Darren Beesley, Head of Retirement and Senior Portfolio Manager at AMP Capital suggests “For investors, or anyone with super, the general advice is to hold your nerve. Selling out at a low will lock in losses.” It’s like selling a house at the bottom of a market slump. Most people would think twice because they understand that property is a long-term investment, just like superannuation.

Decisions on switching funds, for example, from a growth fund to a conservative fund, should also take into account how far away you are from retirement. Those with 15 years or more before finishing work for good may have the benefit of time, in order to wait for the market to recover5.

If you’re able to continue to make regular contributions, you may also see a benefit down the road, as your fund may be investing and buying cheaper assets that are at the bottom of the cycle, which can mean more bang for your buck in the long run.

There could still be tax implications

It’s not just locking in your losses to think about. Depending on the type of fund, there may be capital gains tax (CGT) or other tax/fee implications when switching investment options within the same fund.

As you can see, the decision to transfer your super to a different provider or switch investment options in your current fund, is not a straightforward one. There are many factors to consider, and the impacts of a hasty decision could be felt for a long time.

Ask the experts

If you’re considering making changes to how or where your retirement savings are invested, it’s important to seek advice from a financial adviser if possible. If you don’t have an adviser but would like to speak to one, you can call AMP on 131 267 or use our find an adviser search function.

If you want to understand more about the impact of COVID-19 on your finances and the investment markets visit our dedicated COVID-19 help hub. You could also register for one of the webinars AMP is running to keep you up to date.

1 https://www.investmentmagazine.com.au/2020/03/liquidity-super-funds-say-they-have-enough/
2 https://www.afr.com/policy/tax-and-super/super-enters-record-breaking-10th-year-of-positive-returns-20190627-p521rs
3 https://moneysmart.gov.au/how-super-works/types-of-super-funds
4 https://www.amp.com.au/superannuation/managing-super/how-investment-market-volatility-affects-your-super
5 https://www.ampcapital.com/au/en/insights-hub/articles/2020/march/retirees-covid19-and-options-on-the-table-during-a-market-crash

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