Super Reforms May Put Aussies’ Insurance at Risk

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Inactive superannuation accounts with balances of up to $3,000 are set to be reclaimed by the Australian Taxation Office (ATO), potentially putting individuals at risk of losing valuable insurance cover.

Minister for Financial Services and Superannuation, Bill Shorten

Late last week, Treasurer Wayne Swan and the Minister for Financial Services and Superannuation, Bill Shorten, announced increases to the account balance threshold used by the ATO to recover lost or unclaimed super. Currently, only inactive super accounts with balances of less than $1,000 are transferred. From 1 July 2013 this threshold will increase to $2,000, with further increases planned from 31 December 2015 ($2,500) and 31 December 2016 ($3,000).

According to the ATO, a member is considered uncontactable if the fund has not received a contribution or rollover for them within the last 12 months and either:

  • The fund has never held an address for the member
  • Two written communications have been returned unclaimed. Note that if one written communication has been sent to the last known address and returned unclaimed, the trustees may choose to class the member as uncontactable

For a member to be considered inactive, the individual must have joined the fund as a standard employer-sponsored member more than two years ago and there cannot have been any contributions or rollovers for them within the past five years.

Association of Financial Advisers (AFA) CEO, Brad Fox, told riskinfo the changes could inadvertently impact those members who have a low balance in a fund in order to retain their insurance cover.

… a larger group of people will now be at risk of losing the invaluable insurance cover they have accrued

“The increase in the threshold means a larger group of people will now be at risk of losing the invaluable insurance cover they have accrued through those low balance funds,” Mr Fox said.

“We are waiting to see what measures the Government is going to put in place to mitigate the risk. But it is certainly a concern,” he added.

Mr Fox also highlighted that women were at a greater risk of losing cover, because of the nature of their work cycles. He pointed out that women often hold part-time jobs, and move in and out of the workforce over time to have children, which could mean they hold multiple super accounts and are not aware of the balance of those funds and/or what they stand to lose in the way of insurance benefits.

Dante De Gori, Financial Planning Association General Manager Policy and Government Relations, likened the situation to the automatic transfer of super accounts to MySuper products. However, he pointed out that in the case of lost super, it would be far more difficult to warn members of the potential consequences of automatic consolidation.

“It is possible that a member could have insurance proceeds within a lost account, but for it to be lost, there are a number of things that need to occur for you to be defined that way. It is hard to inform an individual about a change to their fund if they are uncontactable.”

He said it was also important to recognise that consumers who were not aware of the existence of their low balance super account could see their money eroded due to insurance premiums. “Once those accounts are transferred to the ATO, the insurance cover will cease, but the member will receive interest on their balance, which they can reclaim.”

The reforms were announced as part of a suite of reforms to Australia’s superannuation system, designed to make it more sustainable. Among the other changes proposed were:

  • The introduction of a Council of Superannuation Custodians, who will be responsible for the oversight of a superannuation Charter and assessing future policy against it
  • Measures to extend concessional tax treatment to deferred lifetime annuities
  • A simplification of the design and administration of the higher concessional contributions cap
  • A Superannuation Concession Reduction which reduces the tax concession from 30% to 15% for people with an income above $300,000
  • A cap on the tax exemption for earnings on superannuation assets supporting income streams at $100,000

In a joint statement issued by Joe Hockey and Mathias Cormann, the Coalition said the reforms undermined Australia’s superannuation system, and warned further changes were likely.

“In his press conference Wayne Swan was asked twice to explicitly rule out further changes to superannuation in the May Budget in six weeks’ time. He refused.

“Australians live in fear that Labor will once again raid super to pay for the Government’s reckless spending in the Budget.

“Australians doing the right thing by saving for their retirement deserve certainty and stability in superannuation taxation arrangements so they can plan their future retirement with confidence.”

Click here to view the announcement by Minister Bill Shorten.

Click here to view the AFA’s position on the full reform package.

Click here to view the FPA’s response to the announcement.

 



1 COMMENT

  1. The Govt announcement mentioned that the lost super changes would raise $128 million over the forward estimates. This statement confirms that the Govt sees this as a revenue raising exercise and really does not expect lost super members to claim their moneys, otherwise the Govt would include the budgeted cost of the interest paid on the lost super accounts as an EXPENSE in the budget papers.
    A more responsible position for a caring Govt to take would be to re-unite lost members with their money as soon as possible, + interest as they have declared.

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