Govt’s super changes could defeat best interests

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.

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“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.

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If a superannuation member has made an informed and deliberate choice to leave an account balance open of below $6000 for the specific purpose of funding the premium cost of insurance cover that was implemented on an automatic acceptance basis when they joined the fund and they now are no longer insurable due to health status and cannot access alternative insurance cover and this account is automatically transferred to the does the Govt compensate this individual and/or their family, for the loss of financial protection when the insurance is automatically cancelled when the account is transferred to the ATO ?
This individual may have a mortgage of $200,000 and the insurance cover is being deliberately retained for the purpose of ensuring this debt is cleared in the event of death or permanent disablement thereby allowing their family to retain the house and not to lose their largest asset.
This individual has made an informed decision to allocate contributions to an alternative superannuation fund and so the sub $6000 account is no longer receiving any contributions and there has been a calculation completed that will allow the insurance premiums to be funded from this account for the next 10 years.
This member is NOT disengaged as they have DELIBERATELY made an informed decision IN THEIR BEST INTEREST !
For the Govt to even be allowed to automatically assume this member is disengaged is blatantly negligent.
The Govt do not know this person's circumstances, have not completed a fact finding analysis of what their objectives or priorities are. If an adviser were to recommend a transfer of superannuation funds without first knowing the client's circumstances and the result was a complete loss of insurance cover when the client was unable to access any further cover they would be entirely negligent and deemed to have not acted in the client's best interest.
These sweeping thought bubbles that seem to be always wholeheartedly supported by consumer groups and the plethora of "expert" commentators" who like to tag along for the warm fuzzy ride for the purpose of self promotion are highly dangerous and unacceptable.
Yes, there are small superannuation accounts that need to be consolidated, but if it is done on a mass basis , the impact to individuals or families in regard to the immediate loss of valuable insurance cover could be significant with no recourse for these individuals for compensation for the loss.
So, if every adviser is strictly bound to the best interest duty, the Govt had better have a good hard think about the process they are really going to employ so they do not leave people significantly worse off.

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