The Government’s plan to effectively close Eligible Rollover Funds (ERFs) is estimated to raise $143 million for the Budget.
Late last year the Government announced it would move to effectively shut down ERFs by mid-2021. This would be done in three stages, first ERFs would be allowed to voluntarily transfer amounts to the ATO, then accounts under $6,000 would need to be sent to the ATO by 30 June 2020, and finally any remaining accounts would need to be sent to the ATO by 30 June 2021. Additionally, super funds would be prevented from transferring accounts to an ERF from a date to be set in the future.
A Bill to implement this measure has now been introduced to Parliament – the Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020.
The measure is estimated to raise $143 million for the Budget over the forward estimates in ‘fiscal balance terms’, and $199 million in ‘underlying cash balance terms’. With the difference between the estimates reflecting “the time taken to reunite amounts with individuals”.
The Government seemingly plans quick passage of the Bill through Parliament, with draft programs having the Bill passed through the House and debated in the Senate on Tuesday this week. It was introduced to the House on Thursday last week.
The measure was only publicly announced on 13 December, and with no draft legislation released for public consultation.
Meanwhile, some policies from the 2018/19 Budget remain unenacted – such as increasing the SMSF member cap from four to six, which was also an election promise.
The Government says the ATO will do a better job at reuniting people with their super than ERFs. Though the material supporting the Bill provides no estimates of how quickly the Government expects to pay out super transferred to the ATO.
In November, industry super funds were questioned by a Parliamentary Committee about why they were transferring superannuation to AUSfund – an industry super fund owned ERF – instead of the ATO. Industry funds defended the ERF, saying until recently the ATO did no proactive data matching “at all”, and that while AUSfund charged fees, the investment return still left members better off. The ATO doesn’t charge fees on lost super, but only pays interest at the rate of CPI. For 2018/19 CPI was 1.6%; over the last ten years AUSfund has returned 7.63% p.a.
AMP has recently been criticised for paying money owing to customers, relating to fees-for-no-service, into an AMP ERF instead of asking the customers where they wanted the money to be sent.
The Productivity Commission, in its report on the superannuation system, recommended that ERFs should be wound up within three years. The report said: “…Eligible Rollover Funds, some of which have questionable fee structures and do not appear to have achieved much success at reuniting members with their lost super. The ATO should be the sole operator of ‘holding accounts’ for lost super, with APRA overseeing the wind-up of Eligible Rollover Funds.”
Despite having the Productivity Commission report for over a year, the Government has yet to give a substantive response to its recommendations.