Half a million could lose insurance benefits: FSC

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Around half a million superannuation members will lose their insurance benefits if a proposal that will be “redundant” at the introduction of SuperStream is passed into legislation, says the FSC.

In a submission to Treasury, the Financial Services Council (FSC) has argued against the proposed $4,000 increase to the lost member small account threshold.

They warn that valuable insurance held by members could suffer huge consequences if the ‘lost/inactive’ superannuation account threshold is raised from $2,000 to $6,000, as proposed.

The FSC analysed data provided by six of its large superannuation members to estimate the projections on the industry were the threshold to be raised.

The analysis showed that almost 214,000 accounts would be transferred to the Australian Tax Office (ATO) above the $2,000 threshold with total insurance benefits of almost $12 billion by sum insured.

“Projected across the industry, it could be expected that the number of ‘lost/inactive’ accounts where there is an insurance benefit attached is around 500,000 fund members, if the threshold were to be lifted to $6,000,” the submission said.

Furthermore, many of these small accounts are potentially being maintained for the insurance benefit, according to the FSC.

Aside from the potentially damaging consequences due to loss of insurance – which include loss of future insurability – raising the threshold seems redundant in light of the introduction of SuperStream, said the submission.

As the SuperStream program will assist members and superannuation funds to identify and consolidate their superannuation accounts more easily through an online portal, in itself it is predicted to reduce the number of lost and inactive accounts.

“The government should be focusing policy on reuniting people with their superannuation, not paying it into consolidated revenue,” said the FSC. “We therefore submit that the government should defer this change until SuperStream has been implemented, or, at very least, consider only increasing the threshold to $3,000 to allow members and funds time to identify and consolidate accounts.”

The Australian Institute of Superannuation Trustees (AIST) also made a submission to Treasury about the issue, questioning the role that the ATO should take in reuniting members with their retirement savings.

“We cannot support the current situation where, increases to thresholds notwithstanding, the value of unclaimed accounts from 2012-13 sharply increased by $1.2 billion, whereas the total value of lost superannuation accounts showed no change on the previous year,” they submitted. “It very much appears that from these figures that a lot is being sent to the ATO, with not much returned to its members.”

Like the FSC, AIST also raised concerns that with the proposed threshold increases many more superannuation members would be set to lose insurance.

"If more accounts are being sent to the ATO we need to ensure that we are on the front foot to communicate the implications to members.  More needs to be done to ensure members are aware of the benefits of consolidating accounts and being reunited with their lost super," CEO Tom Garcia told Wealth Professional.

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  • Wondering out loud on 11/03/2014 9:15:45 PM

    On one hand the FSC say that “the Financial Services Council (FSC) has argued against the proposed $4,000 increase to the lost member small account threshold. They warn that valuable insurance held by members could suffer huge consequences if the ‘lost/inactive’ superannuation account threshold is raised from $2,000 to $6,000, as proposed.” And “many of these small accounts are potentially being maintained for the insurance benefit.” This is correct. A lot of these funds are in place for people who cannot get underwritten insurance and who have an amount in their fund that self-funds the ongoing premiums without the need for a contribution.
    The FSC then go on to say that ‘the SuperStream program will assist members and superannuation funds to identify and consolidate their superannuation accounts more easily through an online portal, in itself it is predicted to reduce the number of lost and inactive accounts.” By merging them back into one member account.
    Am I missing something here, but don’t both of these statements mean that member’s accounts will reduce and therefore members will lose valuable insurance benefits.
    I am already seeing it happen with letters from some of the more aggressive superfunds having already been sent and accounts being transferred and rolled over to shall we say “friendly predator superfunds” who want to get hold of the member’s funds in their superfund to manage.
    No advice needs to be given to the member about lost insurance benefits, Capital Gains Tax consequences, fees incurred, comparison of benefits or any of the other advice required of a financial planner. If this member walked in to see me about consolidating their many superfund accounts I wish I could just produce a letter and have them sign it to roll the funds over into whichever fund I recommended.
    Oh sorry, wait I can do that letter, it’s called an SOA and is going to be a very significant and expensive document if I have to analyse a number of different funds. Whereas the superfunds who are doing the consolidation just get to charge more fees on their new found funds for the cost of a letter.
    No one seems to care about the clients best interests here.
    Perhaps the industry funds might like to comment here based on their current attack on the FOFA changes, as the industry funds seem to be the most predatory in this regard so far.
    The further irony is, as I understand it, if I have two funds, A & B, and both funds produce a letter at about the similar time, and I receive the letter from Fund A and sign it transferring the funds from Fund B to Fund A. I lose my insurance, probable exit fees, most likely Capital Gains Tax and possible entry fees into Fund A. Then I get Fund B’s letter and I sign it transferring the money in Fund A (which now includes fund B’s former money) Fund A is required to rollover the funds back to Fund B. with loss of insurance, probable exit fees, most likely Capital Gains Tax and possible entry fees back into Fund B.
    Can anyone see anything wrong with this, and how much fun is the industry going to have if I have six or seven or more accounts. I could have the money going on a continual tour around the superfund industry, not earning me anything, just going to everyone else’s benefit but mine.
    Someone please tell me I am missing something here and this can’t surely be as bad as it seems. But with so much self-interest out there in superfund world, I am fearful that I may just have this worked out correctly.

  • Keith L. on 12/03/2014 5:24:23 PM

    Stop being stupid Wondering-Out-Loud, You are too well informed and rational to receive any credibility and no one is going to take any notice of what you wonder. For the media to take any interest you have to be ill-informed like Bill Shorten, seriously conflicted like David Whitely, have a vested interest like Choice magazine or make outrageous claims like all of the above to have the media take any notice. Having a high profile also means when you make a claim such as, "Industry Funds are ripping off all lost super fund holders," particularly if you use phrases like, "Conflicted, fat-cat, preying on the disadvantaged," the media will most likely pick up the theme and run with it. Dropping the contentious element in the BID provisions has generated so much intense anti financial planner press but try and raise any such interest against the massive misrepresentation contained in the Compare The Pair campaign and nobody will raise an eyebrow. It reminds me a bit of a promo for the Alien movie, "In space, no one can hear you scream."

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