Protecting your super package announced

Among the measures announced in the 2018-2019 federal budget was the 'protecting your super package' which Treasury describes as 'a comprehensive package of regulatory reforms designed to protect Australians' superannuation savings from undue erosion by fees and insurance premiums'.  The government has also released draft legislation to implement the reforms.

Consultation on draft legislation

The Government has released exposure draft legislation: Treasury Laws Amendment (Protecting Superannuation) Bill 2018 and explanatory material to implement the package for consultation.

The draft Bill proposes to amend the Superannuation Industry (Supervision) Act 1993 (SIS Act), Superannuation (Unclaimed Money and Lost Members) Act 1999 (SUMLM Act) and Taxation Administration Act 1953 (TAA 1953) to:

Cap administration/investment fees: Schedule 1 of the draft Bill proposes to prevent trustees of superannuation funds from charging administration and investment fees exceeding 1.5% of the balance of accounts with balances below $6,000 for the six month period immediately following the date on which the balance is calculated. In addition, the Bill proposes to prevent trustees from charging exit fees on all superannuation products.

The government writes (in Budget Paper No. 2) that passive fees charged by superannuation funds on accounts with balances below $6,000 will be capped at 3% annually.

Implement 'opt in' (rather than opt-out) insurance for certain accounts: Schedule 2 of the draft Bill proposes to impose a requirement on superannuation funds to only offer insurance on an opt in basis in relation to accounts of:

• new members under 25 years old;
• all accounts with balances below $6,000; and
• all inactive accounts unless the member has directed the fund to provide that insurance.

Consolidate inactive, low balance accounts: Schedule 3 of the draft Bill proposes to amend the SUMLM Act to require superannuation providers and retirement savings account (RSA) providers to pay the balances of accounts to the ATO where the account has been inactive for 13 months and the balance of the account is less than $6,000.The Bill also proposes to give the ATO greater powers to consolidate amounts held for a person who has an active account with a superannuation provider or RSA provider, without needing to be directed to do so by the person.

Timeframe

Consultation on the draft legislation closed on 29 May 2018. The proposed implementation timeframe for the changes is 1 July 2019.

Industry failed to act?

The AFR comments that the release of the package underlines the inadequacy of the voluntary code of practice and more particularly its failure to address 'the plight' of young people 'forced' to take out life insurance, despite lower claims rates. The article quotes Minister for Revenue and Financial Services Kelly O'Dwyer as commenting: 'I am not going to wait for the industry to do this. I gave them a chance to fix it and they didn't. I wasn't going to hang around and wait for five years while they talked among themselves'. The article goes on to suggest that the release of the package will not be a surprise to industry as evidenced by the fact that AustralianSuper has already acted to remove compulsory insurance for those under 25, and other funds may be moving in a similar direction.

Possible implications of the proposed changes

• Rise in premiums likely? Reporting on the way that the measure has been received by industry, The Australian writes that the changes are likely to negatively impact the financial performance of the largest life insurers and that some insurers have said that the changes may result in a rise in insurance premiums.

• Leave under 25s with inadequate cover?Investment Magazine reports that the insurance industry is still working out the probable consequences of the government's move to make life cover inside superannuation an 'opt in' for members under 25 years old. The article quotes Association of Superannuation Funds of Australia (ASFA) CEO Dr Martin Fahy, as expressing the view that the measure could leave some young people with inadequate cover: 'Many young people have dependants and financial commitments, so in the instance of a tragic event occurring, particularly disablement early in life, having insurance in place is extremely valuable'.