Low balance superannuation fund members may be left worse off if the Government proceeds with legislation which would compulsorily shift their accounts to the Australian Taxation Office (ATO), according to the Association of Superannuation Funds of Australia (ASFA).
In doing so, the Government may be acting against members’ best interests.
In a submission to the Treasury, ASFA has pointed to an analysis of the relative performance of low balance accounts within superannuation funds compared to those held by the ATO and warned that members could be left worse off.
“We consider that there needs to be careful consideration over whether it is in a member’s best interest to transfer off low balance accounts when the member only has one account and no alternative active account to which the inactive account could be transferred,” it said.
“ASFA has conducted analysis into the relative performance of low balance accounts compared with those held by the ATO and we have found that for members with balances below $6,000 they are likely to be better off if their account remains with a fund due to the higher investment returns.”
ASFA argued that members should be able to elect to maintain low balance accounts if they wish and for reasons other than maintaining an insurance benefit.
It also argued that 13 months was a relatively short time-frame for the determination of inactivity in a low-balance account and that members might have perfectly straightforward reasons for such inactivity, including maternity leave, carers’ leave and extended leave for travel or study.
“On the assumption that lack of contributions will be the primary determinant of inactivity the 13 months should be extended to two years and we note that the Productivity Commission’s draft report recommends that the lost inactivity threshold be set at two years,” the submission said. “This timeframe would provide greater assurance that the member is genuinely lost or disengaged.”
Elsewhere in its submission, ASFA pointed to the ATO’s ability to consolidate superannuation into active accounts and said this represented a compelling reason for the ATO to move the money directly from an inactive account to an active account rather than going to the ATO.