Australia’s $2.3 trillion superannuation industry, already under intense scrutiny at the financial services royal commission, is also in treasurer Scott Morrison’s sights when it comes to fees and charges.
The federal budget looks to protect the super savings of young people by capping fees on low balances and “inactive” accounts as well as making insurance premiums opt in rather than default for people under 25.
Treasury estimates around six million super accounts, owned by four million members, are currently inactive.
Superannuation funds will also be banned from charging exit fees when a customer switches funds, although the reforms won’t come into effect for another 14 months, on July 1, 2019.
Exit fees cost account holders $52 million last financial year and the move is expected to save people an average of around $70.
The treasurer also wants the Australian Tax Office (AT0) to be “proactive” in returning lost and unclaimed superannuation to its owners and sent to active accounts.
At 30 June 2017, there were more than 6.3 million lost and ATO-held super accounts worth nearly $18 billion.
“We will stop superannuation funds from forcing young people under 25 or with low balances to pay for life insurance policies they have not asked for or do not need,” Morrison said in his budget speech.
Morrison’s proposal will see annual charges capped at a maximum of 3% for accounts with less than $6,000 in order to stop the balance being whittled down by management fees.
The life insurance changes will mean a super member will have to opt to take out a policy if they’re under 25, have a balance below $6,000, or the account classified as “inactive” because it has not had a contribution for 13 months.
With young people frequently changing jobs and employers using their own preferred default super funds, the treasurer hopes to curve the lucrative skimming of multiple accounts by the super industry offering life insurance to millennials who don’t really need it.
ATO figures say nearly 15 million Australians have a super account and around 40% have more than one account – 25% have two, 9% have three and the remainder four or more.
But the ATO figures suggest that the changes proposed by Morrison don’t go far enough by only targetting young people, with the 36-50 age bracket the cohort with the highest level of multiple accounts.
For workers aged 18-25, 22.65% have two super accounts and 7.91% have three – below the national average. By aged 36 that figure climbs above 25% for two accounts and 20% for three.
On the upside, the ATO says that over the past four years, the percentage of people with three or more super accounts has steadily decreased.
The tax office will be handed increased powers to consolidate inactive accounts worth less than $6,000 and combine them with active accounts. Currently the owner has to search for lost funds and then apply to have them transferred.
The government expects the changes to superannuation will deliver $1.1 billion in budget savings over four years.
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