The Gillard Government is also committed to cutting red tape and lowering processing costs in superannuation. The SuperStream reforms will significantly lower processing costs by moving the industry from paper-based to electronic processing. This is a fundamental shift and the industry has estimated that these reforms will save up to $1 billion per annum.
Building on these achievements are new proposals in today’s Mid-Year Economic and Fiscal Outlook which prevent accounts being eroded by fees and charges, lower operating costs and improve tax certainty.
Better protection for lost superannuation
Reforms such as MySuper ensure Australians’ hard-earned savings aren’t eroded by unnecessary fees and charges.
There is currently around $17 billion sitting in 3.4 million lost accounts in superannuation funds.
New Treasury analysis shows the Government can do more to prevent small accounts being eroded by fees and charges without a member’s awareness.
Casual and part-time workers, as well as younger workers are particularly at risk because they may have small balances from a number of different employers.
The Government has already put in place a number of initiatives through the Australian Taxation Office (ATO) in recent years to help reunite members with lost super accounts, which have proven highly successful.
Treasury estimates that under the current rules, a 20 year old with $1,000 in super can unknowingly have their super savings eroded to just $418 after 5 years by a range of fees and deductions.
Fees and insurance charges typically exceed average investment earnings even for accounts with $2,000. A 30 year old with $2,000 can unknowingly have their super savings eroded to just $1,250 after 5 years.
The Government will implement reforms to preserve the value of lost member accounts in the superannuation system.
To do so, the Government will introduce the following reforms:
- The account balance threshold below which inactive accounts, and accounts of uncontactable members, are required to be transferred to the ATO will be increased from $200 to $2,000, to ensure they are properly protected from being eroded by fees and charges;
- Interest will be paid at a rate equivalent to Consumer Price Index (CPI) inflation from 1 July 2013 on all lost superannuation accounts reclaimed from the ATO; and
- The period of inactivity before an account of an unidentifiable member is required to be transferred to the ATO will be reduced from five years to 12 months.
The reforms to the transfer of lost accounts to the ATO will take effect from 31 December 2012. The ATO will use its data matching resources to match these lost accounts with members and assist those members to be reunited with their lost superannuation. The Government will consult further on additional ways to facilitate this process of reuniting members with their lost accounts.
Individuals can reclaim superannuation accounts transferred to the ATO at any time, however no form of interest is currently paid when they are reclaimed.
The introduction of interest at CPI means that not only will these small lost accounts no longer be eaten up by fees and charges, but they’ll actually retain their value in real terms when they’re re-united with the lost member.
As a result of the Government reforms a 20 year old with $1,000 currently inactive in super, will be able to claim $1,131 from the ATO after 5 years, a boost to their superannuation savings of over $700 compared with current arrangements. And a 30 year old with $2,000 will be able to claim $2,263 after 5 years, a boost to their superannuation savings of over $1,000 compared with current arrangements.
These reforms will also help reduce the number of superannuation accounts that have unidentifiable members by reducing the period of time that a super fund can hold the account of an unidentifiable member. This will encourage funds to collect sufficient information to identify members during the period when contributions are being made.
This measure is estimated to improve the budget position by $675.2 million over the forward estimates period. The ATO will receive $62.8 million over the forward estimates to implement these changes. The ATO will also administer $37.0 million in interest payments associated with reclaimed funds.
The Government will implement a recommendation from the Super System Review (Cooper Review) and repeal the member protection regulations from 1 July 2013. This measure has no revenue impact.
Members with small inactive accounts will now be covered by the new lost member account provision announced today and other members will have access to simple superannuation products as a result of the Government’s MySuper reforms.
Transferring more small lost accounts to the ATO and repealing the member protection regulations will increase the overall efficiency of the superannuation system, which will bring benefits for fund members.
Bringing our super industry online
The Government’s SuperStream reforms are moving the superannuation industry from largely paper‑based processing of rollovers and contributions to mandatory electronic transactions, a fundamental but important shift.
Manual processing of superannuation transactions currently cost between $5 to $10 per transaction. It is estimated that after SuperStream is implemented, processing costs will be between 5 to 15 cents per transaction. These savings will flow to members in the form of lower fees and charges.
The industry has raised with the Government their concerns about being able to fully comply with the new data standard for rollovers from 1 July 2013, and have sought an orderly 6 month transition-in period. In the interests of an efficient and effective system, and recognising the number of significant reforms the industry is in the process of implementing, the Government has agreed to the industry’s suggestion.
The Government remains committed to mandating electronic contributions from medium and large employers from 1 July 2014. As such, the transition-in period for rollovers will end on 1 January 2014, so that the industry can prepare itself to receive contributions electronically for employers.
The Government has asked the ATO and the Australian Prudential Regulation Authority (APRA) to work together with the superannuation industry to ensure an orderly transition into the new standard for rollovers.
SuperStream Advisory Council
The Government considers it important that there is external scrutiny of the implementation of SuperStream. It is therefore announcing the membership of the SuperStream Advisory Council.
Damian Hill, Chief Executive Officer of Retail Employees Superannuation Trust (REST) will Chair the Council. Damian has extensive experience in the industry and a strong awareness of the challenges the industry faces and the potential for SuperStream to deliver benefits for employers and for funds. The other members of the council bring a diverse range of knowledge and experience across the industry, and they are:
- John Berrill (Principal, Maurice Blackburn Lawyers)
- Brian Bissaker (Consultant, former Chief Executive Officer, Colonial First State)
- Shawn Blackmore (General Manager Operations, Australian Super)
- Emma Dobson (Director, Global Transactional Services, Westpac)
- Michael Dwyer (Chief Executive Officer, First State Super)
- Dick Grozier (Director, Australian Chamber of Commerce and Industry)
- Matthew Halpin (Chief Officer, Member Administration, QSuper)
- Allen Innes (Senior Human Resources Manager, Woodside Energy)
- Danielle Press (Chief Executive Officer, Equipsuper)
- Graham Sammells (Chief Executive Officer, IQ Group)
- Russell Smith (Chief Executive Officer, Skilled Accountants Pty Ltd)
The key responsibilities of the Council include leading the adoption of the SuperStream reforms, setting measures of success and reporting to Government.
I look forward to working with the council to promote an efficient superannuation industry.
Reduction in superannuation industry levy
The Government will reduce the SuperStream component of the Superannuation Supervisory levy being collected from APRA regulated superannuation funds to cover the Government’s costs of implementing SuperStream.
The Superannuation Supervisory levy will be reduced by $38.2 million over the next six years, commencing with a 10.4% reduction commencing in 2013-14. The reduction in the levy is as a result of savings in the ATO’s administration of SuperStream.
This measure will have no net revenue impact over the forward estimates period.
It is worth noting that the Howard’s Government’s Simpler Super changes cost the ATO $527 million over 5 years to implement.
Reforms to the SMSF levy
The Government is also implementing reforms to the levy paid by self-managed superannuation funds (SMSFs).
The ATO is responsible for regulating the rapidly growing and diverse SMSF sector and has advised the Government that the levy isn’t fully covering its costs. This means that people who don’t have an SMSF currently have to pay for some of the costs of regulating them.
The levy will be increased from $191 to $259 per annum from 2013-14 onwards to ensure SMSFs pay the full cost of regulating their sector.
The Government will also change the collection of the SMSF levy, so that it is paid in the relevant financial year, rather than the following financial year. This will ensure consistency with APRA regulated funds, which pay the Superannuation Supervisory Levy in the same financial year it is levied.
The change in the timing of the collection of the SMSF levy will be phased in over the two years 2013‑14 and 2014-15 to give SMSFs time to adjust.
These changes are estimated to provide savings to the Budget of $319.0 million over the forward estimates period.
Tax certainty for deceased estates
Investment earnings derived by superannuation funds on assets supporting pensions are exempt from tax. A draft ruling issued last year by the ATO has led to some uncertainty over eligibility for this tax exemption following the death of the member to whom the pension was being paid.
Concerns have been raised with the Government that applying tax to investment earnings (including realised capital gains) following the death of a pension member poses practical difficulties for funds and risks eroding the value of death benefit payments to beneficiaries.
To address these concerns, the Government will amend the law to allow the pension earnings tax exemption to continue following the death of a pension recipient until the deceased member’s benefits have been paid out of the fund.
This will benefit the beneficiaries of deceased estates by allowing superannuation fund trustees to dispose of pension assets on a tax-free basis to fund the payment of death benefits. It will also avoid the need for funds to rework tax calculations following the death of members in the pension phase.
The superannuation law requires the benefits of a deceased member to be paid out of the fund as soon as practicable.
These changes will apply to the 2012‑13 and later income years.
Greater certainty for superannuation fund mergers
The Government will provide greater certainty for superannuation funds considering mergers.
Given the significant potential benefits to members of superannuation fund consolidation the Government will ensure that a barrier that may have prevented otherwise sound mergers will be removed.
Currently, the tax laws prevent members from manipulating a better tax outcome by choosing to draw down their superannuation benefits from different tax components.
It is not appropriate that this integrity rule should apply where the movement of a member’s benefits is due to circumstances outside their control, like the case of merging superannuation funds.
The Government will introduce legislation, to apply from 1 July 2013, to clarify that this integrity rule does not apply to transactions that are beyond the control of individual members.
Minister Shorten’s Media Contact: Sam Casey—0421 697 660
