However, given several changes that take effect from 1 July 2019, we felt it was pertinent to touch base prior to this.
Protecting Your Superannuation Package
The changes that we refer to above are encapsulated in the recently legislated Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018.
Whilst an overview of this Bill was provided in our article, ‘Legislative update (Acts): To be, or not to be… (Part 2)’, we go into further detail below.
In a nutshell, to protect a person’s retirement savings, from 1 July 2019:
- Trustees are prevented from charging certain fees and costs exceeding 3% of the balance of a MySuper or choice product annually, where a member’s account balance is <$6,000. Particularly administration fees, investment fees, and associated costs – fees incurred by members simply by virtue of holding a product.
- If a trustee has charged more than the amount allowed, the excess above the cap must be refunded to a member, generally within 3 months of the end of the fund’s income year.
- Trustees are prevented from charging exit fees (other than a buy-sell spread) on a superannuation product, where a member disposes of all or part of their interest in a superannuation entity, regardless of a member’s account balance;
- a switching fee may still be charged where a member switches all or part of their interest in a superannuation entity from one class of beneficial interest in the entity to another.
- Trustees are prevented from providing opt-out insurance (such as life, total and permanent disability or income protection insurance) to a member with a MySuper or choice product if their account is inactive (has not received a contribution or rollover in the previous 16 months), unless a member has directed the trustee to maintain the insurance;
- prior to the insurance ceasing, trustees will be required to notify a member where they have been identified as having an inactive account, and provide them with the opportunity to take steps to maintain their insurance if they desire.
- Trustees are required to transfer an inactive low-balance (<$6,000) MySuper or choice account to the Australian Taxation Office (ATO);
- trustees are required to identify inactive low-balance accounts on 30 June (statement date, 31 October of the same year) and 31 December (statement date, 30 April of the following year) each year, and then report and transfer them to the ATO by the statement date;
- a member’s inactive low-balance account may still be considered active (and not transferred to the ATO), where the following occurs:
- the member changes their investment options,
- the member makes changes in relation to their insurance coverage,
- the member makes or amends a binding beneficiary nomination,
- the member, by written notice given to the ATO Commissioner, declares that they weren’t a member of an inactive low-balance account,
- the superannuation provider was owed an amount in respect of the member.
- The ATO are required to consolidate amounts that have been paid as unclaimed money into an active superannuation account within 28 days of being matched.
When considering the Protecting Your Superannuation Package and protecting a person’s retirement savings, a recent report* by the Productivity Commission provides some context:
- “Excessive and unwarranted fees remain a significant drain on net returns.
- High exit fees can create a barrier to member switching, across both the accumulation and retirement phases.
- Not all members get value out of insurance in super. Many see their retirement balances eroded — often by over $50 000 — by duplicate or unsuitable policies.
- A third of accounts (about 10 million) are unintended multiple accounts. These erode members’ balances by $2.6 billion a year in unnecessary fees and insurance.”
- at 30 June 2018, over 15.6 million Australians had a superannuation fund account, and approximately 39% of these people have more than one superannuation account;
- at 30 June 2018, there were a total of over 6.2 million fund-held (lost uncontactable and lost inactive) and ATO-held superannuation accounts.
It’s important to note that the majority of stakeholders support the Protecting Your Superannuation Package. However, this has not been without its concerns^. For example:
- “The fee cap may lead to a reallocation of fees and charges to members who have account balances that are greater than $6,000, or alternatively lead to a reduction in services for those members with lower account balances.
- The definition of inactivity may cause detriment to certain groups, including, for example, those taking parental leave and/or intermittent workers.
- Although the precise amount is debated, insurance premiums are likely to increase both because the insurance risk pool will be reduced and because high-risk members are more likely to opt-in.”
In our article, ‘Multiple super accounts and you’, we highlight several of the above points; however, we also highlight, for example, in some instances it can make sense to retain multiple superannuation accounts.
For example, you may be in a position where:
- one superannuation account needs to be retained with the minimum account balance required as you have insurance within it that was established before a medical condition developed, and
- another superannuation account is receiving your personal and employer contributions due to its more appropriate investment options, features and/or benefits.
In this instance, depending on your personal circumstances, the first superannuation account may be identified as either an inactive or inactive low-balance account now or into the future.
Consequently, you may need to take steps to ensure that your insurance is maintained – this may also be pertinent if you are taking time out of work (raising a family or a career break/sabbatical).
If you have any questions regarding this article, please do not hesitate to contact us.
*Australian Government, Productivity Commission. (2018). Superannuation: Assessing Efficiency and Competitiveness.
^Australian Government (2018). Bills Digest no. 32, 2018–19.