With the Government passing the Protecting Your Super package, super funds will now have to comply with additional requirements – some of which, depending on the structure of the fund, may have a tangible impact on both members and trustees.
We previously discussed this package in November, when Assistant Treasurer Stuart Robert said it would protect against “inefficiencies that result from Australians inadvertently holding multiple superannuation accounts.”
He added that it would empower the ATO to reunite Australians with lost super and puts a cap on “certain fees that can be charged on small superannuation balances, and bans exit fees on all accounts.”
With the package now passing into law, let’s consider some key ramifications:
Administration and investment fee cap
From now on, funds must cap fees at 3% for superannuation accounts with balances of $6000 or less. This may pose an issue for super funds, especially newer ones explicitly aimed at meeting the needs of younger members.
Why? Because in some cases the flat fee charged by these funds is well in excess of the 3% cap, given that younger members will generally have lower balances.
Opt-in insurance
An additional requirement is that super funds can now only offer insurance on an opt-in basis for accounts with balances less than $6000, belonging to members younger than 25 or which haven’t received a contribution for 13 months or more.
While this is a positive for younger members and lower-earners whose balances might otherwise be eaten away by insurance premiums, it will put pressure on existing insurance arrangements in super. Furthermore, given the extant issues super funds have with member engagement, some members who might benefit from life insurance may never find themselves cover.
Are further changes on the way?
Consider some of the recommendations made by the final Royal Commission report, wherein Kenneth Hayne said the trustee of a registerable superannuation entity (RSE) shouldn’t be allowed to “[assume] any obligations other than those arising from or those in the course of its performance of the duties of a trustee,” as a means of ensuring separation between members’ interests and the promotion of super products.
He also said people should only have a single default account, and that a mechanism should be developed to “staple” a person to that account.
Wrapping it up
It remains to be seen how (and if) these recommendations will be enshrined into law, but it’s worth noting the Government is already planning to introduce new super legislation into parliament, with Robert saying “making our superannuation system work for members is part of the Government’s plan for a stronger economy.”
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