Recovering lost super can improve retirement incomes bit by bit
- On 15/02/2018
It is difficult to count the number of Australians with a superannuation or pension account as there are many living or travelling abroad who have some superannuation back home. ATO figures show that around 40% of some 15 million Australians they have identified hold more than one superannuation account. Some people have a need for two accounts, usually for insurance purposes or being unable to combine a defined benefit and accumulation account. Yet, with more than 28 million accounts in total, it suggests many Australians hold too many accounts.
Under certain circumstances, the ATO can claim lost or inactive accounts held by superannuation funds. This includes accounts with balances less than $6,000 and the accounts of former temporary residents who have left the Australia for longer than six months. Lost or inactive funds that do not meet the ATO’s criteria remain within the superannuation fund.
The ATO data also shows that just over 6.3 million accounts are either lost or inactive. As at 30 June 2017, the value of these lost or inactive funds held within superannuation funds or by the ATO stood at just under $18 billion.
On January 1 2017, the threshold for the ATO to claim lost small accounts increased from $4,000 to $6,000. This resulted in a noticeable increase in the number of small accounts claimed by the ATO from around 4.1m in 2015-16 to 4.6m in 2016-17. This increase in lost small accounts is 78% higher than the increase seen between 2014-15 to 2015-16, reflecting the higher thresholds for confiscation of the lost accounts. Despite this increase, $14 billion of the $18 billion of lost and unclaimed funds are still held by the superannuation funds.
Analysis of Rice Warner’s Super Insights database shows that over 60% of the lost accounts transferred to the ATO in 2015-16 were held by individuals aged between 30 and 49 (Graph 1). Further, as Graph 2 shows, this statistic is mirrored on an assets basis. This may reflect individuals switching jobs in their thirties and failing to carry over the typically low balances accumulated in previous jobs where salaries may have been low.
The ATO provides interest on the account balances they hold in line with increases in the consumer price index. Consequently, members who delay recovering their lost accounts are missing out on additional fund returns. If this relatively large cohort recovered their superannuation, it would significantly reduce the overall returns forgone in the system and improve their own retirement balances.
Our Super Insights database shows the average amount transferred to the ATO is around $1,500 for those in their thirties. While on face value this seems small, if transferred to a fund and invested appropriately, consolidation can have a material impact on retirement outcomes. Modelling done by Rice Warner suggests that a 30-year-old¹ on a salary of $50,000 with $1,500 in lost superannuation would be around $4,200 dollars better off (in today’s dollars) by the time they reach 65 if they simply contacted the ATO and recovered their lost superannuation at age 30.
From little things, big things grow…
Graph 1: Proportion of lost accounts transferred to the ATO by age
Graph 2: Distribution of assets transferred to the ATO by age
¹ Aged 30 with a balance of $25,000 and salary of $50,000.