Australia’s $16 billion super wasteland

George Lekakis
Feb 17, 2015, updated Feb 17, 2015

Shutterstock

Australia’s archive of lost super is located on the secure servers of the Australian Tax Office in Canberra.

It is probably the nation’s most valuable record of neglected wealth, showing that $16 billion of cash and other investments sits in unclaimed superannuation accounts.

According to the ATO, more than 6.3 million people, or 45 per cent of the workforce, are unaware that they hold multiple super accounts.

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Idle accounts are a bonanza for superannuation funds.

Forgotten super is money down the drain in administration fees and life insurance premiums. Photo: Shutterstock

Even though contributions have not entered these accounts for many years, some funds continue to swipe administration and other service fees from the balances of inactive members.

The average fees charged by low cost super funds are around $532 a year.

This means that Australians are potentially paying annual fees worth billions of dollars every year on forgotten accounts.

Money down the drain

The collective failure of millions of Australians to consolidate their superannuation arrangements constitutes one of the biggest drains on household wealth every year.

The waste is magnified when one considers that monthly insurance premiums also continue to be deducted until idle accounts are closed. After adding deductions for death cover and income protection, the annual cost of holding multiple accounts potentially exceeds $4 billion.

Inevitably, the balances of many accounts are reduced to a paltry sum because the investment assets and annual returns are not sufficient to cover administration and insurance costs.

The ATO is now mounting a campaign to raise public awareness of the problem.

“It is not uncommon for people to open a new super account when they start a new job instead of taking their super fund with them when they change jobs,” says ATO Assistant Commissioner John Shepherd.

“People might also have super accounts which they have lost track of, for example, they may not have updated their contact details with their funds when they moved house – there are still $5.8 billion worth of accounts in this category.”

Over a million Australians have more than three super accounts

It’s bad enough that almost half of the working population unnecessarily doubles up on super costs every year, but the ATO’s database shows that 1.2 million people are members of three or more super funds.

Some of these workers are doing material harm to their retirement nest eggs, especially on low balance accounts (less than $2000) that stand to be almost completely eroded within five years.

However, there are also troves of super money out there waiting to be claimed.

The ATO has classified 709,000 Australian super accounts as “inactive”.

The aggregate balance of these accounts comes to a staggering $7.5 billion.

This means that the average balance exceeds $10,500.