A group of some of Australia’s largest industry super funds have struck a deal to consolidate the superannuation accounts of mutual members, in a move to fix the chronic problem of multiple accounts.
The new deal will target half a million low-balance inactive accounts, and could save members around $100 million a year in fees and life insurance premiums.
The move was led by Industry Super Australia, a peak body for the industry superannuation sector. It involves 18 major super funds, including AustralianSuper, Cbus, HESTA, Caresuper, HOSTPLUS and MTAA Super.
IN addition to the 16 members of ISA, it also includes REST, Equip Super and First State Super.
If you have an inactive account containing less than $6000 with one of these funds, you will see that money automatically rolled into a central consolidated pool, managed by an industry fund-owned, low-fee specialist fund called AUSFund.
AUSFund will then run a check to see if you have an active account with one of those 19 funds. If you do, the money will be automatically transferred into that fund free of charge.
So if you currently have a super fund with Media Super, but also have an inactive account with HOSTPLUS and AustralianSuper, the money sitting in the HOSTPLUS and the AustralianSuper accounts will automatically appear in your Media Super account.
ISA chief executive Bernie Dean said the new scheme would “cut through restrictive rules which limit the ability of funds to reunite members’ lost and inactive savings without first obtaining express consent”.
“Once a match is found members will still be able to opt out, but a survey following the pilot found members who had accounts consolidated were very happy funds proactively chased their savings.
“This is the right thing to do for members. They expect the system to sort out multiple accounts for them,” he said.
A stubborn flaw in the system
The problem of multiple accounts is a well-understood flaw in the compulsory workplace superannuation system, but has proved stubbornly difficult to address.
A number of factors are behind this. First, because superannuation is compulsory, and because people are generally disengaged from super, many automatically join a new fund every time they start a new job.
If you change jobs regularly and never nominate a super fund, this means you may find yourself with several accounts, on which you are paying hundreds or even thousands of dollars in fees and charges.
While you can easily avoid this by nominating your own super fund every time you start a new job, and by consolidating all old accounts into your current one, the reality is that many Australians are simply too disengaged to do this.
The superannuation regulator APRA has tried to address this by encouraging smaller superannuation funds to merge with bigger ones, but so far with little success.
More significantly, the Productivity Commission – the federal government’s in-house think tank – earlier this year recommended a radical solution to the problem.
Currently employers generally pick their default super fund – that is, the super fund they put their employees into if their employees don’t pick their own – through two methods: industrial awards, and enterprise bargaining agreements.
The Productivity Commission recommended stripping superannuation out of the industrial relations system altogether, and replacing it with a list of 10 high-performing ‘best-in-show’ super funds. Only top performing funds would appear on this list of 10.
On starting their first job, Australian workers would be asked to pick a fund from this list, and from that time onwards all super contributions would go into that super fund. Over the long term this would solve the problem of multiple accounts.
Industry funds, however, oppose this solution, claiming young people starting out in the workforce should not be asked to pick a fund.
Opponents of industry funds – namely for-profit, often bank-owned retail funds – would claim industry funds oppose the Productivity Commission’s proposal because it would destroy their main distribution model: industrial awards and EBAs.
While ISA’s proposal offers an alternative solution to the Productivity Commission’s, it is only a partial solution. Members of non-participating industry funds, including giants like UniSuper and Sunsuper, would not benefit.
Nor would members of public sector funds such as QSuper, or retail funds such as those run by the Big Four banks and AMP.
Initially REST – one of the biggest funds in Australia – did not sign up to the initiative. However on Monday afternoon it revealed it would be signing up, opening the prospect of others following suit.
The New Daily is owned by Industry Super Holdings, which also own Industry Super Australia.