There is a danger that superannuation fund members could “game” the Federal Government’s latest Budget changes capping fees on low-balance superannuation funds, according to the Australian Institute of Superannuation Trustees (AIST).
In a submission filed with the Senate Economics Legislation Committee review of the Budget-related legislation, the AIST has warned that inconsistency between what is classified as “fees” and “indirect costs” provides “an avenue for entities to game the fee capping requirements”.
It said that, on this basis, it believed indirect costs should be included in the fee cap calculation and that the fee cap should be calculated retrospectively.
The AIST submission said that if the fee cap was calculated retrospectively, this would ensure members did not “game” the fee caps by withdrawing funds prior to balance day only to move them back in at a later point.
“Whilst the measure makes allowances for members who close (or open) their account during the year, the measure is silent on members who move funds out leaving a small amount at balance day,” it said.
The AIST also warned that exit costs could be “gamed” because of the exclusion of the sell component of buy/sell spreads.
“This also affects how many members may be covered,” the submission said. “To ensure that exit costs are not simply repackaged as part of the buy/sell spread, the sell portion of buy/sell spreads should be included as part of exit fees.”
The AIST submission also warned of the need for greater lead time to implement the Budget changes, arguing that funds would need to undertake fee modelling and administrators would need to change fees for each fund they administered.
“AIST has concerns that services provided to members may be withdrawn from members with low balances in order to ensure that increased costs passed on to other members are minimised,” the submission said.
“This will undermine important member engagement activity targeted at people joining the workforce and new fund members. AIST recommends that fee caps are restricted to inactive accounts to avoid these unintended consequences.”