The Government has introduced a Bill to Parliament which it says will protect superannuation savings, but also raise a considerable amount of money for the Federal Budget.
The Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 would cap fees for small account, make some insurance in super opt-in and transfer more inactive super accounts to the ATO – measures which were announced in the 2018 Budget.
Following the introduction of the Bill, Minister for Revenue and Financial Services Kelly O’Dwyer said the Government had taken action to protect the “hard-earned” superannuation savings of Australians from “rorts and rip-offs”.
The Bill is estimates to raise $1.75 billion for the Federal Budget over the forward estimate years, in underlying cash balance terms, or $850 million in fiscal balance terms.
Labor and Coalition Governments have increased the threshold at which the ATO takes superannuation from $200, to $2,000, then $4,000 and finally $6,000. Instead of raising this threshold the Bill would expand the conditions under which the super would be transferred to the ATO.
The ATO will though be given the power to proactively pay superannuation it holds to the rightful owner. Minister O’Dwyer said these changes would increase superannuation account consolidation and reduce the number of inactive accounts.
The Bill would also cap administration and investment fees at 3% for superannuation accounts below $6,000.
The Government has recently been criticising Labor for removing the ‘member protection rules’ in 2013. This was a recommendation of the Super System Review (Cooper Review), which found the cap on fees for low balance accounts “operates as a disincentive for members to consolidate small account balances, is administratively inefficient and has outlived its usefulness”.
The Bill also bans super fund exit fees, irrespective of balance.
“These changes will help to prevent erosion of low balance accounts by high passively-incurred fees, and will remove a disincentive to superannuation fund members consolidating and closing unwanted accounts,” said the statement by Minster O’Dwyer.
Also under the Bill, super funds would be required to only provide insurance on an opt-in basis to new members under age 25, members with balances below $6,000 or members with inactive amounts.
“This will better target default insurance cover and prevent inappropriate erosion of retirement savings by insurance premiums for cover members do not know they have, that goes beyond what they need, or which they cannot even claim on,” said Minister O’Dwyer.
“These measures address significant issues associated with the current default insurance arrangements in superannuation, which were also put in place in 2013 by then Minister for Superannuation, Bill Shorten.”
The Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 was introduced to the House, but has yet to pass.
The Bill does not include a Statement of Compatibility with the Objectives of Superannuation, as would be required by the Government’s unpassed Superannuation (Objective) Bill 2016.