In December 2018 the productivity commission ruffled a few feathers with its report into the Superannuation Industry, suggesting employers and unions cede control of the $600 bn default superannuation system.
The report identified that more than 30% of the 25 million accounts in the superannuation system are deemed inactive, resulting in investors paying $2.6 billion of unnecessary fees each year.
In response and as part of their 2018/19 Federal Budget the Coalition introduced a number of reforms designed to “protect Australians’ superannuation savings from undue erosion by fees and insurance premiums”.
The reforms were passed by both Houses of Parliament on 18 February 2019, and is currently awaiting Royal Assent. Reforms include:
- Insurance within super cancelled for inactive accounts
Superannuation trustees are required to cancel the insurance in any super account considered inactive.An inactive account is defined as any super account that:
- has not received a contribution or rollover for 16 continuous months, and
- the member has not opted in to continue their insurance cover.
Before taking action, superannuation trustees must try to contact and advise account holders that they are at risk of having their insurance cancelled and provide people with the opportunity to opt-in to keep the insurance.
Making a super contribution or rollover into an account that’s considered inactive will also stop the insurance cancellation from going ahead. Making regular contributions can also prevent an account becoming inactive again.
- Inactive super accounts with low balances will be closed
Many inactive accounts with a balance of less than $6,000 will be closed, and the balance transferred to the Australian Tax Office. The ATO will then use data matching to connect these super accounts with an active account of the member where possible.
- Cap on fees for accounts with low balances
Fees will be capped at 3% pa for accounts with $6,000 or less at year end.
- Switch funds without paying an exit fee
All superannuation account holders will be able to switch super funds without paying a penalty as exit fees will be banned.