What is the new legislation affecting super?
First, here is a quick summary of the new laws that come into effect on 1 July this year. Titled the Protecting Your Super package, the laws aim to address the adverse impact on people’s super savings caused by:
- Fees eroding accounts with low balances.
- Insurance premiums for cover that may not be suitable or necessary.
- Having more than one super account and paying multiple fees.
Now, to help work out if you could be affected, consider asking yourself these questions:
1. Do you have a super account with a balance under $6,000?
If you answered yes, certain fees on your account will be capped at no more than 3%, helping to protect your balance from excessive fee erosion. The cap will apply to costs such as admin and investment fees charged by funds to their members.
2. Do you have a super account that hasn’t received a contribution recently?
The cap on fees may be irrelevant to your account, though. If your account balance is under $6,000 and has been ‘inactive’ for 16 months, your super fund will transfer the account to the Australian Taxation Office (ATO) by 31 October 2019. If you have another super account that you have been contributing to, the ATO says it will consolidate the inactive low-balance account into the active one.
According to the ATO, up to three million super accounts will be closed as a result, and $6 billion in funds consolidated. Then on an ongoing basis, funds will need to identify inactive accounts at the end of December and June each year, and transfer them to the ATO by the end of April and October, respectively.
Regardless of your balance, if you haven’t had a contribution made to your account recently, from 1 July your fund must cancel any insurance cover you have through the account – unless you tell them not to in writing beforehand. It is up to your fund to decide the definition of ‘recently’ – which can be any period up to 16 months.
3. Do you have more than one super account?
Even if your super isn’t transferred to the ATO, it may still be a good idea to track down all your super accounts and consolidate them into one, unless you have a specific reason for keeping more than one account.
The Productivity Commission estimated a person’s final super balance could be $50,000 lower at retirement if they’re paying fees for multiple accounts. Your super fund may be able to help you find other accounts you may have and start the process of combining them into one. A new law has also banned all withdrawal and exit fees from super, removing what might have been an impediment in the past to combining multiple super accounts.
What else can you do to set your super up for the new financial year?
If you don’t want your low-balance account to be transferred to the ATO, or your insurance cancelled, or you are just focussed on making a difference to your super balance in the new financial year, consider getting some financial advice – either from your super fund or from an adviser outside of super.
Depending on your situation, you may ‘reactivate’ a low-balance, inactive account to prevent it being transferred to the ATO by making a contribution, making an investment choice or nominating a beneficiary. It could also pay to review and tailor your insurance cover through super so it’s suitable for your needs.
Canstar note: Consolidating super funds is beneficial for many people but isn’t right for everyone (we explain some of the reasons why here), so the pros and cons should be carefully weighed up. When seeking the right fund for you there are many factors to consider, such as the fees charged, whether the insurance offering is suitable for you and the education and advice available.
About Joshua van Gestel
Josh is Sunsuper’s National Education Manager. He has 25 years’ experience in financial services and financial media organisations. He holds a Diploma of Financial Planning and qualifications in Workplace Education & Assessment.
Main Image: Yulia Grigoryeva (Shutterstock)