Good News Amid Super Changes

05 Nov 2012

It was one of a several changes to super announced last Monday, alongside a rise in the levy for self-managed schemes, tax relief for the beneficiaries of deceased estates and a small reduction in charges paid to the ATO by pooled retirement funds.

Under the new transfer rules, the ATO will claim unidentifiable accounts of less than $2000 where there have been no contributions for 12 months. Accounts of less than $2000 where the members are contactable but which have lain dormant for five years will also be transferred to the Tax Office.

In return, the government will pay interest at a rate equivalent to the consumer price index to any members who reclaim their super savings, and will not charge any fees on the balances.

Under the current arrangements, accounts with less than $1000 can charge investment and administration fees, but only at a rate where the fees do not exceed earnings. There are no restrictions on the fees charged on accounts with balances of more than $1000.

The policy director of the Association of Superannuation Funds of Australia (ASFA), Ross Clare, urges savers to locate lost accounts. “If you consolidated the accounts yourself, you won’t have to pay a fee on the account you have closed and you will earn super fund returns. CPI [as a rate of return] is not that great,” he adds.

The executive director of advice firm Crystal Wealth, Tim Wedd, says: “If you think that we will have a reasonably low inflation environment for a reasonably long time, active management should give you a better return than CPI.”

Balanced super funds aim to offer a return of between 3 per cent and 4 per cent above the CPI, which is currently 2.5 per cent.

Assuming CPI of 3 per cent, the ceiling of the Reserve Bank of Australia’s target, the manager of advice strategy at ipac Securities, John Dani, estimates that after 20 years a $2000 investment would be worth $3612. After 40 years it would be worth $6524.

Assuming an after-fee return on a growth fund, the same investment would be worth $9322 after 20 years and $43,449 over 40 years due to compound returns.

The director of advisory firm Strategy Steps, Louise Biti, warns that small accounts transferred to the ATO will lose any accompanying insurance benefits. “You will lose your death benefits or your insurance benefits altogether,” she says.

ASFA estimates the ATO could transfer between 1 million and 1.5 million accounts into the government’s coffers from December. The sweep could put further pressure on super fund revenues – and hence on fees or the level of service to members.

The chief executive of the $1.4 billion Intrust Super fund, Brendan O’Farrell, says retirement schemes will have fewer accounts over which to spread their expenses and will incur additional costs to implement the measure.

“We stand to lose 12 per cent of our revenue. Either you have to cut services or increase your revenues through higher fees,” he says.

Intrust Super predicts it will lose 5000 accounts as a result of the ATO sweep. This is in addition to the 10,000 accounts it expects to lose from so-called auto consolidation, a regime which is due to come into force in January 2014.

Auto consolidation will require the ATO to use members’ tax file numbers to automatically consolidate accounts with less than $1000 where there have been no contributions for two years.

Even after the Tax Office has swept up the money from small accounts, it will be obliged to locate the owners of accounts that fit into this category.

“Auto consolidation, the ATO’s Super Seeker service and the measure announced in the Mid-Year Economic and Fiscal Outlook are all designed to reunite Australians with their lost retirement savings and reduce the fees they pay on their superannuation,” says a spokesman for Superannuation Minister Bill Shorten.

As for self-managed fund levies, the federal government says from 2013-14 the annual levy will rise from $191 to $259.

The technical director of the SMSF Professionals Association of Australia, Peter Burgess, notes that this suggests the levy for both 2012-13 and 2011-12 will be $191, down from the previous year’s $200.

To give funds time to adjust, the proposed collection regime for the SMSF levy will be phased in over two years, in 2013-14 and 2014-15.

In perhaps a rare piece of positive news for savers, the government announced a new rule for pensions that could save spouses and children inheriting deceased estates thousands of dollars in tax.

It could also trigger an increased appetite for property among DIY fund trustees, experts said.

From 2012-13, the pension of a person who dies will only cease to be a pension when all the death benefits are paid to beneficiaries.

This means that the savings of a person who dies will remain in the pension phase until all the assets have been transferred or sold – without being subject to capital gains or income tax.


Sally Patten