A move by the Federal Government to lift the threshold at which small superannuation accounts would be transferred to the Australian Taxation Office (ATO) will increase the risk of superannuation fund members losing significant insurance benefits tied to their superannuation accounts, according to the Association of Superannuation Funds of Australia (ASFA).
ASFA has used a submission to the Treasury to point out that the industry held concerns when the small account threshold was $2000 and that those concerns had been magnified by the fact that the new Coalition Government had signaled its intention to lift the threshold to $4000 and then $6000.
Further, it has argued that the lifting of the threshold should be deferred at least until the Australian Taxation Office has the ability to appropriately repatriate the small accounts.
“The industry response to the 2012 change was that, on balance, given the impending loss of member benefit protection, the increase in the threshold was justified,” it said. “With respect to the current proposal, there is considerable doubt about the merits of the proposed further increases in the threshold.
“While the aim of protecting account balances may be appropriate for account balances under $2000, there is far less certainty about the need for such protection of the members’ accounts under the proposed higher thresholds.”
The ASFA submission said higher account balances were more likely to hold insured benefits and that there was an increased likelihood that the member had consciously maintained an otherwise inactive account for the explicit purpose of retaining insurance through that account.
“A significant number of superannuation funds, under their partial portability rules, have a “retained balance” threshold – generally around $5000 – which insured members avail themselves of in order to retain insurance cover through their account,” it said.
“Where a member avails themselves of this feature it may be many years before they need to perform the positive act of making a contribution in order to top up their account so that the insurance premiums can continue to be deducted.”
