Super Changes in the Budget That May Affect You

With continuous alterations in previous Budgets being a source of frustration and confusion for both funds and members, the 2018/19 Budget continues to tinker with the system resulting in a number of changes being made that employers should be aware of.

The Government has announced three initiatives which will have an impact upon members, the fund and the administrator, if legislation enabling these initiatives passes.

Below is an initial briefing of changes and how First Super anticipate the affect the changes might have.

Inactive Accounts / Account Fees

Inactive superannuation fund members who have a balance of less than $6,000 will have their account balances transferred to the Australian Taxation Office. Inactive accounts are those that have not had a contribution in 13 months and members who become inactive will have their insurance cancelled once they become inactive.

The ATO will then attempt to locate the member and transfer this money to their active superannuation account.

These members will lose their insurance and will receive lower earnings on this amount transferred as the ATO only pays the CPI on account balances. First Super members typically earn at least twice CPI.

Insurance inside of superannuation

New members will not be provided with insurance inside of superannuation until their account balance is greater than $6,000. At present they are provided with insurance which they can opt out of.

Insurance will also not be available to the following members unless the member opts in or passes a threshold

1. New members under the age of 25
2. All accounts with balances below $6,000
3. All inactive accounts

Insurance in superannuation will move from default to an opt-in basis for members with balances below $6,000 for members under 25 years and with inactive accounts with no contributions in 13 months. These changes will take affect from 1 July 2019.

All other members will face an increase in the cost of their insurance as there will be fewer members insured. Preliminary estimates are 40% increases.

Members with account balances of less than $6,000 will have fees capped at 3%. This will save most members within this cohort money but some will pay more than they would if the fee is set at 3%.

Admin costs as a result of Budget changes

All other members will face an increase in administration costs due to the number of inactive members being transferred to the ATO and the 3% cap on fees for members with account balances of less than $6,000.

First Super’s Response

The affect of 3% fee cap will see administration costs for members with account balances of above $6,000 will increase. The magnitude of this increase is not known at this stage. Consolidation of inactive accounts will also result in an increase in administration costs.

Turning off insurance will detrimentally affect inactive members and will increase the cost for active members.

Further analysis will be undertaken by First Super and employers will be notified accordingly.