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