Part B - Superannuation (Schedule 4)
Schedule 4 of the Bill amends the SUMLM Act to make a number of changes.
First, it will increase the account balance threshold below which lost accounts are required to be transferred to the ATO from $200 to $2,000, effective from 31 December 2012. A ‘lost account’ is one where the member is ‘uncontactable’, or the account has been inactive (no contribution or rollover) for a period of five years. A member is ‘uncontactable’ if and only if the super fund has never had an address for the member, or sent two written communications (or, if the provider chooses, one written communication) to the member’s last known address and they were returned unclaimed. The definition of a ‘lost member’ excludes amounts supporting defined benefit interests, amounts held in self managed superannuation funds, or where the member has indicated that he or she wishes to continue to be a member of the fund.
Second, schedule 4 will reduce the period of inactivity before an account of an ‘unidentifiable’ member is required to be transferred to the ATO from five years to 12 months, effective from 31 December 2012. A member is ‘unidentifiable’ if the super fund is satisfied, based on the information reasonably available to the fund, that it will never be possible to pay an amount to that member. These amounts represent less than 0.1 per cent of superannuation.
Third, schedule 4 will provide for the payment of interest on superannuation accounts that are reclaimed from the ATO, accruing and payable from 1 July 2013. See Payment of interest on unclaimed moneys below for further information on interest.
Protecting small balances from erosion by fees and charges
Accounts with small balances held in superannuation funds are often eroded over time by fees, charges and insurance premiums.
Rice Warner5 estimate that the overall fees for the whole superannuation industry, expressed as a percentage of assets, averaged 1.20 per cent for the year to 30 June 2011. Fees for small lost accounts can, however, be considerably higher than the industry average.
The Rice Warner analysis shows that fees for accounts with a low balance (i.e. $5,000) can be as much as three times the industry average (for example, 3.94 per cent for the small corporate master trust segment, 2.26 per cent for industry funds and 2.4 per cent for eligible rollover funds with balances of $5,000).
The Treasury has undertaken an analysis of the impact that typical fees and charges can have on low super account balances. This analysis indicates that the return after the deduction of fees and insurance for balances of up to $2,000 is typically negative.
For example, an account in a typical fund with a balance of $2,000 at the beginning of the year will have reduced by around $135 for a 30-year-old to $1,865 in a year’s time after fees and insurance premiums.
In cases where insurance benefits are still attached to lost super accounts, the insurance policy will not continue on transfer to the ATO, including existing lost super amounts transferred to the ATO. Cancellation already occurs within a number of funds when account balances fall below a given threshold or when accounts are transferred to an eligible rollover fund. It should be noted that individuals still engaged in the workforce, are likely to have another active account with insurance still attached.
The Treasury estimates that over a five-year period, protecting an account from fees and paying interest at a rate equivalent to CPI inflation could make a 20-year-old who currently has $1,000 inactive in super over $700 better off, and a 30-year-old who currently has $2,000 inactive in super over $1,000 better off.
The Treasury analysis is based on the ChantWest 10-year average net rate of return for balanced funds, average administration fees and default insurance across an indicative sample of industry and retail funds.
Uncontactable members
The ATO provides guidance on when a member is considered ‘uncontactable’ in their ‘Lost members register – protocol document’. The non-response by a member to mail or an email that requests an action does not equate to ‘returned unclaimed’ mail. The regulations state that a member is considered ‘uncontactable’ if, and only if, two pieces of written communication sent to the member’s last known address are returned unclaimed. However, the regulations also give the super provider the option to act upon one written communication sent to the member’s last known address and returned unclaimed.
Under the Superannuation Industry (Supervision) Act 1993, trustees must “exercise, in relation to all matters affecting the entity, the same degree of care, skill and diligence as an ordinary prudent person would exercise in dealing with property of another for whom the person felt morally bound to provide”.
As a result, a fund must make a reasonable effort when trying to locate an uncontactable member. What is considered reasonable involves an element of judgment, and it depends upon the facts of the case and the environment in which the issue is being examined. Examples of follow-up action to make contact with a member if they are considered lost could include the following (in addition to mail outs):
- checking the super provider’s own data to see if the member has other accounts with more current information;
- contacting an employer in cases where the employer is contributing to the account; and
- engaging a company like Australia Post to undertake database searches to locate the member.
In these circumstances, the super provider would utilise the return of unclaimed mail as a trigger to undertake additional thorough searches to locate the member.
The ATO’s protocol document however, does not expect super providers to pursue information or activities at all costs, but to base their efforts on what would normally be required in the circumstances, having regard to the environment.
Unidentifiable members
The second much smaller component of the superannuation changes relates to accounts of ‘unidentifiable’ members. Only for these accounts, will amounts be transferred to the ATO after 12 months of inactivity rather than five years as is currently the case. These amounts represent less than 0.1 per cent of superannuation.
Accounts of ‘unidentifiable’ members are also known as ‘insoluble lost member accounts’. These are accounts where the super fund is satisfied, based on the information reasonably available to the fund, that it will never be possible to pay an amount to that member. This would be satisfied if, for example, the super fund was missing both the member’s full name and tax file number.
Reducing the period of time that a super fund can hold these accounts will encourage super funds to make further inquiries to discover who the owner of the account is, during the period when contributions are being made.
A number of individuals have incorrectly stated that all super accounts that have been inactive for 12 months will be transferred to the ATO. This is false. Only the tiny proportion of accounts where the member is ‘unidentifiable’ will be transferred to the ATO after 12 months of inactivity rather than five years as is currently the case.
Strategies to reunite members with lost super accounts
The ATO has a number of strategies in place to help reunite members with lost super accounts, aiming to reduce the number of unnecessary and inactive accounts. The success of these ATO programs has helped reunite over 1 million people with around $5.5 billion in lost superannuation. For the first time, the value of lost and unclaimed superannuation decreased in 2011-12, from $20.9 billion as at 30 June 2011 to $17.7 billion as at 30 June 2012.
Individuals are able to claim back monies from the Commissioner at any time. In most cases super monies will need to be transferred into an account nominated by the member, however the monies can be paid directly to the member where a condition of release has been met (for example, the person is over 65 or the balance is less than $200).
The ATO has various strategies in place to reunite people with super amounts transferred to them. All of the strategies described below are underpinned by ATO data matching work to identify the tax file number (TFN) and new address of members. The ATO can access its data holdings across a range of tax and superannuation systems and third party data. Once successfully matched to the owner of a TFN, these accounts can then be displayed on the ATO’s free online service, SuperSeeker.
The ATO strongly promotes the SuperSeeker service in the media and through other outlets to encourage individuals to search for lost super. SuperSeeker continues to be one of the ATO’s highest utilised online services. During the 2011-12 financial year, there were 1.37 million SuperSeeker searches undertaken.
Members can use SuperSeeker to locate active superannuation accounts, lost superannuation accounts, and superannuation monies held by the ATO. Currently, SuperSeeker can help you lodge a request with your fund online if you wish to transfer your super to another super account. In addition to the online service, members can also use the SuperSeeker service by phoning the ATO and either asking ATO staff to conduct the search on their behalf, or using the interactive voice response service.
Where ATO held superannuation is located, members can complete a portability form or claim form to initiate a rollover to their current fund, and in certain circumstances withdraw the funds. From 2014, members will be able to complete an electronic claim form to rollover or claim these amounts.
The ATO also provides super funds with a search facility to allow them to check, with member consent, for any ATO held monies. Funds are required to notify the member of the results of these searches and to seek the consent of members to arrange rollover into a super account nominated by the member.
The Government will consult further on additional ways to facilitate the process of reuniting members with their lost accounts.
ATO activities to reduce number of accounts which become lost
The ATO has worked to reduce the number of accounts and members which become uncontactable. The ATO has manually matched lost superannuation accounts and notified members of their lost superannuation through letters and phone calls. The letters and phone calls encourage taxpayers to get in touch with their fund and update their details, or to consider consolidating their accounts. As part of the letter campaign, the ATO also provides portability forms to members to encourage them to consolidate their accounts. If the member wishes to consolidate, they may do so by using SuperSeeker, completing the portability form, or contacting their active fund to begin the process.
The ATO also provides current address information to funds, allowing them to re-establish contact with their members. During the 2011-12 year, the ATO provided around 1.4 million addresses to funds, helping them reunite over 1 million people with approximately $5.5 billion in lost superannuation.
Proactive payment of unclaimed superannuation under $200
The ATO has also commenced making proactive payments of unclaimed super balances under $200. The ATO has access to data arising from direct lodgement of information by individuals and third party data providers, which allows it to obtain updated addresses. When an account is successfully matched, a cheque is automatically issued to the member, without the need for a claim form to be lodged. Since its commencement in June 2012, the ATO has issued nearly 153,000 cheques worth $11.6 million.
5 The Financial Services Council released the report ‘Superannuation Fees Research – June 2012’ which was prepared for it by Rice Warner Actuaries. The report is largely based on APRA data, supplemented by Rice Warner’s own analysis.
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