Many Australians will have their forgotten superannuation effectively “swept into the government’s coffers” from December 2016, and their insurance benefits “stripped away” as a result, the peak body for super funds has warned.
Jim Minto, interim CEO of the Association of Superannuation Funds of Australia (ASFA), was responding to the ATO’s release of the latest lost super figures, which revealed that a total of $11.7 billion is sitting in lost super accounts.
What the ATO failed to mention was that, because of changes legislated under Tony Abbott, the dollar figure for accounts that can be claimed by the government as “lost” will increase from $4000 to $6000 on 31 December 2016.
“Enormously valuable” insurance benefits will be cancelled as a result, Mr Minto told The New Daily.
“The cash balance is being transferred across, the super account closed, the money held with the ATO, and the insurance benefits stripped away,” Mr Minto said. “These insurance benefits are, in effect, being deemed to be worthless because they are just being taken away. But they are enormously valuable.”
Many super funds deduct premiums for death cover, total and permanent disability cover, and income protection. It was Mr Minto’s concern that many families rely on these forgotten benefits when disaster strikes.
“What happens at the moment is that if somebody with $4000 in their account passes away or becomes ill, a lawyer, friend or member of the family will go hunting for their superannuation arrangement and try to see if there is a claim available to them,” he said.
“In fact, this happened in my own family with one of my sons when his wife passed away. You find there’s a superannuation account and some insurance and it makes a meaningful difference to people’s lives.”
Accounts are deemed “lost” if no contributions are made for five years, the member cannot be contacted, and the balance is below the threshold. Once transferred to the ATO, the balance only increases in accordance with the Consumer Price Index (CPI). They can be claimed by their true owner at any time.
But Mr Minto warned that because the lost money is credited to the government’s account as revenue, and “forever retained” if never claimed, there is no incentive for the government to find the true owners.
“It’s banked. There is no incentive, really, from a central perspective to go and hunt this out,” he said. “The only hope we’ve got is that people find their own money through their own efforts. But this isn’t happening.”
The counterargument, put to Parliament by former treasurer Joe Hockey, is that small balance accounts are “eroded by fees and charges”, including insurance premiums, if not safeguarded by the government.
Minister for Revenue and Financial Services Kelly O’Dwyer told The New Daily the lost super scheme “protects members from having their lost super balances eroded by fees”.
Mr Minto agreed it was not ideal for small balance funds to be left alone. He called on the super industry to “accelerate” efforts to consolidate forgotten accounts with members’ main funds.
Spokesmen for Industry Super Australia and the Australian Institute of Superannuation Trustees (AIST) also stressed the importance of finding and consolidating lost super.