The Government has released draft legislation for three of the superannuation changes announced in the 2018 Budget.
The 2018 Budget, which was released last night, included a number of superannuation changes. The Government has now released, for consultation, draft legislation for three of the changes:
- Cap on some super fund fees, ban on all exit fees
- Insurance in super to be opt-in for some
- Transferring more super to the ATO, proactive payments
Cap on some super fund fees, ban on all exit fees
A ban on exit fees and a cap on super fund fees for small balances was announced in the 2018 Budget.
Super fund accounts with less than $6,000 will have administration and investment fees capped at 3% per annum. This will be calculated based on the balance at the start of each six month period, with a 1.5% cap applying for those months.
Regulations can allow the 1.5% cap to be lowered.
The Government says this will “protect superannuation members so their superannuation accounts can grow faster by not being subject to disproportionately high fees while they remain at low balances”.
Currently super fund members can be charged an exit fee – which is limited to cost recovery – when they withdraw part or all of their balance. Under the proposed changes exit fees will be banned, which will “remove a disincentive to account consolidation or rollovers by members”.
Insurance in super to be opt-in for some
Also announced in the 2018 Budget, insurance in super will move to opt-in for young people, small balances and inactive accounts.
Under the change insurance can only be provided to members where they opt-in for the following groups:
- a new account who is under 25 years old
- an account with a balance below $6,000
- an account that has been inactive for 13 months
The change to opt-in is intended to start on 1 July 2019. Super fund trustees would be required to notify affected members on or before 1 May 2019, to give them the opportunity to opt-in to insurance. Additional notification requirements are expected to be set in regulations.
“A significant number of people hold duplicate or inappropriate insurance policies, in large part due to the current default MySuper settings and the relative ease with which an individual can inadvertently create duplicate account,” says the Explanatory Memorandum to the Bill.
“Insurance premiums are a key driver of account balance erosion, and can reduce a low income earner’s retirement balance by 10 per cent or more.”
Transferring more super to the ATO, proactive payments
Under the changes in the 2018 Budget, all super accounts under $6,000 which have been inactive for 13 continuous months will be transferred to the ATO. This is on top of the existing rules for transferring inactive super to the ATO.
One of the tests for an account to be inactive is if it hasn’t received a contribution or rollover within the last five years. Under the draft legislation this would be reduced to 13 months.
“The changes supplement the current arrangements to streamline consolidation for disengaged members, ensuring that superannuation savings are better protected from inappropriate or excessive erosion by fees and insurance premiums,” says the EM.
“Reducing the number of low balance accounts will generate system-wide efficiencies by reducing administration costs for funds and better targeting default insurance coverage.”
The ATO will also be able to be more proactive in paying super it holds. Currently the ATO can only pay superannuation it holds to a super fund when directed by the member. Under the changes the ATO “must” pay the super it holds for a person to an active super account when the resulting balance would be equal or more than $6,000.
Rules on how the ATO will choose which super fund the amount will be paid to will be set in regulations.
“These rules would consider the balance of the account, the types of contributions being made to the account and any directions from the person about the payment of co-contributions.”
The initial transfer of these inactive accounts to the ATO is planned for 2019/20, the same year as when the ATO will begin proactively transferring superannuation held.