The Government has announced it will move to effectively shut down Eligible Rollover Funds by mid-2021, with the superannuation going to the ATO.
Eligible Rollover Funds (ERFs) are super funds designed to manage superannuation balances that are small, lost or inactive. But now the Government wants the ATO to solely have this job.
Under the Government’s plan – to be introduced to Parliament “early” next year – ERFs would first be able to voluntarily transfer “any amount” to the ATO. Then all accounts under $6,000 would need to be transferred to the ATO by 30 June 2020. Any remaining accounts would need to be sent to the ATO by 30 June 2021.
Assistant Minister for Superannuation, Financial Services and Financial Technology, Jane Hume, in a joint statement with Treasurer Josh Frydenberg, said this was a “step forward in addressing the issue of unnecessary duplicate accounts in the superannuation system, lowering fees and charges”, and that it would “facilitate the exit” of ERFs from the industry.
“The ATO’s data matching program has generated results far exceeding those previously achieved by ERFs, which house millions of inactive and forgotten superannuation accounts. By reuniting these lost accounts with their rightful owners, members will benefit from higher account balances and no longer be paying multiple sets of fees,” said the joint statement.
Liberal MP Tim Wilson, in recent Parliamentary hearings, questioned why there was a spike in lost superannuation going to the industry super fund ERF AUSfund. Industry funds defended using AUSfund, arguing that even after fees the returns it paid were far higher than those paid by the ATO on lost super. The ATO only pays interest at the rate of CPI for lost super it holds.
Successive governments have raised the level at which lost super is transferred to the ATO, in stages, from $200 to $6,000. It was only recently that the ATO got the power to be more proactive in reuniting people with their super.
Increasing the threshold at which lost super goes to the ATO has been a boost to the Federal Budget, as was the Government’s ‘Protecting Your Super’ package of legislation.
Hume said the Protecting Your Super reforms had led to the ATO proactively reuniting over 2.13 million accounts, containing a total of $2.79 billion.
“The ATO’s data matching program has generated results far exceeding those previously achieved by ERFs, which house millions of inactive and forgotten superannuation accounts. By reuniting these lost accounts with their rightful owners, members will benefit from higher account balances and no longer be paying multiple sets of fees.”
Lost and unclaimed super reached a new, at least recent, high of $20.8 billion in June 2019 – up $3.3 billion in a year. Though the ATO has yet to release figures on how much of this super is held by funds and how much by the tax office.
Shutting down Eligible Rollover Funds within three years was a recommendation of the Productivity Commission’s report into superannuation. Though the Government has yet to respond to all of the recommendations, despite having the report for almost a year.
The impact to the Budget of this change is unclear. The Mid-Year Economic and Fiscal Outlook (MYEFO) will be released on Monday 16 December.
Update: According to the Mid-Year Economic and Fiscal Outlook (MYEFO), the change will not only eventually require all accounts to be paid to the ATO, but also “prevent new amounts being paid to ERFs”. It is estimated that this will raise $143 million in ‘fiscal balance terms’ over the forward estimates, or $199 million in ‘underlying cash balance’ terms – with the difference in the estimates due to the “time taken to reunite amounts with individuals”. This more than offsets the cost of other superannuation policy changes made since the Pre-election Economic and Fiscal Outlook (PEFO) – amendments to the Protecting Your Super Package and extension of the Super Guarantee amnesty period.
More to come.