The Federal Government has been warned that superannuation fund members risk being treated unequally because of the speed with which it has proceeded with its Protecting Your Superannuation legislation.
In a submission dealing with consultation around the implementation of the new legislation, the Association of Superannuation Funds of Australia warned that the legislation not only imposed a significant operational burden on funds but risked treating fund members unequally.
“Our most immediate concern is the unequal treatment of members caught up in the retrospective calculation for the first tranche of inactive insurance accounts,” the submission said. “These members will have only one chance to maintain their insurance and if they inadvertently fail to respond they may lose a benefit that is of great value to them.”
It said the affected members might have voluntary insurance which they have taken out deliberately or maintained on leaving employment.
The ASFA submission also raised concerns about what it described as “two new and different inactivity tests (the insurance inactivity test and the low balance inactivity test) in addition to the inactivity, lost and insoluble tests contained in the Superannuation (Unclaimed Money and Lost Members) Act 1999 (SUMLM Act)”.
“This is confusing for members and will be complex for funds to administer,” it said. “While the amended low balance inactivity account definition could be refined, we consider that this test could also be used for inactive insurance accounts as it better reflects genuine activity, has a low balance threshold and where a member elects to maintain his or her benefit the election is permanent and does not need to be renewed every 15 months.”
The submission also said ASFA remained concerned about the potential for the low balance cap to be used by high balance account holders to minimise fees on a single or ongoing basis by leaving an account balance of less than $6,000 on the review date.
It said this would produce a result which was directly opposite to the aim of protecting low balance accounts by advantaging members with high balance accounts and transferring the cost of those refunds to other members of the fund.