Protecting Your Super
- On 31/05/2018
As part of this year’s Federal Budget, the Government announced a range of changes to insurance and superannuation as part of their Protecting Your Super Package.
In November 2016, Rice Warner made a submission to the Productivity Commission review into alternative default models for superannuation. We argued that the value of young people’s superannuation is often eroded through:
- Holding multiple accounts as they tend not to consolidate their super when they change jobs.
- Having high fees relative to their small account balances.
- Paying insurance premiums for life insurance which may be excessive relative to their needs at the time.
The Government’s Budget has introduced measures to reduce the insurance premiums and fees charged to young members, inactive members and members with low superannuation balances.
It has also introduced measures to reduce the number of people with unnecessary multiple accounts by increasing the extent to which small inactive accounts are transferred to the ATO and then returned to member’s active accounts. It is encouraging to see the Government is addressing those issues we had previously identified.
The Government’s Budget package pre-empted the Productivity Commission’s draft final report into assessing the efficiency and competitiveness of superannuation issued on the 29th May 2018, which also addresses these issues.
We generally support the objectives of the Budget package. The labour market has undergone significant changes since the introduction of compulsory superannuation. This and the endemic apathy of many younger members has resulted in people having unnecessary inactive accounts. While the government together with the super industry have been successful in curbing the growth of superannuation accounts and reducing the total number of accounts by about 3 million over the last five years, it still believes there are about 10 million unnecessary duplicate accounts.
However, superannuation is complex, and it is not easy to apply these rules without be some unintended consequences from the proposed legislation. We have identified several issues with the Government’s proposed package which we believe should be considered during the implementation process, including:
- Removal of opt-out cover for those with balances will prove difficult to administer as every new member of a fund will be uninsured until their balances reaches $6,000. It will therefore be difficult to determine the exact point at which cover turns on and off.
- Given the significance of these changes, funds will likely need to renegotiate the terms of their contracts with insurers. This will be difficult to do in time for the 1 July 2019 start date for these changes.
- The 3% cap on administration and investment fees will be difficult to administer as it is designed as 1.5% cap on administration and investment fees on accounts with balances below $6,000 for the six-month period immediately following the date on which the balance is calculated.
- Superannuation funds may be the only option to obtain insurance cover for individuals working in a range of high risk occupations. Members in these occupations may be unable to replace their cover if it was reduced or removed.
- We have outlined further details of our views on the package and suggested possible solutions to fix possible implementation issues in our submission to Government. In particular, we have recommended that APRA be given powers to modify or exempt some funds and employers from certain requirements where appropriate.
Click below to download our submission.
The executive team at Rice Warner will be available to assist clients with strategic considerations and implementation issues as they work through the Government’s proposed changes. Contact your Rice Warner Consultant for further information.