Many people frequently roll over their super benefits from an industry fund to a new SMSF or even back the way when they wind-up their SMSF. However there are many issues that needs to be considered before doing this including:
- The SMSF will need to have an electronic service address (ESA) that is rollover enabled in order to process the rollover.
- People still working need to inform their employer of the change of funds so the employer can pay compulsory super contributions into the new fund.
- If a concessional contribution has been made to the existing fund, there is certain documentation that needs to be prepared before the rollover in order to claim the tax deduction.
- Check what will happen to insurance benefits when moving from one fund to another. If a member is rolling into a SMSF, they can set up insurance in their SMSF and should ensure this is put in place before rolling out of the industry fund. This protects against the possibility that the member can’t obtain the same level of cover in the new SMSF, or the cover is much more expensive. Many 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 have “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. These nominations are “fund specific” so if they are to continue, the nominations will need to be replicated in the new fund.
- There can be tax and other costs involved in leaving one fund to move to another. For example, when moving benefits from an SMSF to a public fund, the SMSF will need to sell its assets which may trigger capital gains and also wind up costs. Some public funds allow members to choose specific investments for their super so some assets can be transferred in specie from the SMSF rather than selling them and transferring the cash. Note any remaining capital losses are trapped in the SMSF and will be lost forever.
- Many people have their super balance split between several different accounts. (e.g. multiple pensions in retirement). 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. This can unwind years of careful planning so up-front planning is required to avoid this outcome. This can be managed by doing the transfer progressively if possible.
- Its best to wind-up an SMSF well before 30 June of that year to avoid incurring additional tax, accounting, and audit costs.
