Lost, unpaid and eroded superannuation will be reunited with workers under a massive superannuation package announced in the federal budget – which will also try to kick our addiction to lump sum payouts in retirement.

Fewer bosses will get away with stealing retirement payments from their workers and less super will be eaten up by unnecessary and excessive fees, if the government’s plan works.

The Protecting Your Super Package, announced in Tuesday’s budget, will cap passive fees, hunt down unpaid super, ban exit fees, and help workers find accounts they had long forgotten about.

Finance Services Minister Kelly O’Dwyer said the changes would be of special help for women, who often have “interrupted work patterns and low incomes”.

Interestingly, hidden deep in the budget, is the beginnings of an attempt to coax workers to make their superannuation last longer by drawing incomes from it, rather than taking it all in a lump sum in retirement, as most do now.

But the centrepiece of the package was undoubtedly the measures on unpaid super. After years of inaction and a growing chorus of dismay from workers, the Labor party and industry, comes the stunning admission from the government that the problem of unpaid super is rife.

Unpaid super

Unpaid superannuation was thrust into the national debate in 2016 when research by Industry Super Australia and Cbus estimated that almost three million workers were losing a collective $5.6 billion a year from their retirement accounts (based on 2013-14 figures). That worked out to an average of $2025 each – money their bosses were legally required to pay.

The Australian Taxation Office, which at first resisted calculating the figure, put it at a more conservative $2.85 billion a year.

In Tuesday’s budget, Treasurer Scott Morrison promised to instruct the ATO to ‘proactively find your lost super’, an admission there was a problem.

And there is serious money behind the promise.

The ATO will get an extra $186 million in 2018-19 alone to enforce payment of superannuation. Each year it will get more than $30 million extra to spend on collecting superannuation debts from employers (although this money will also be spent on collecting unpaid tax).

Lost super, forgotten no more

Inactive super accounts will also be sent back to the ATO much more often, hopefully resulting in the forgotten funds being reunited with their rightful owners.

Instead of small amounts sitting idle, slowly eroded by fees, the ATO will seize inactive accounts with balances of less than $6000 and use an “expanded data matching process” (a fancy term for computer software) to find the worker’s active account and consolidate the two.

Inactive accounts – those which haven’t received any contributions in 13 months – are an especially big problem among younger and itinerant workers, who often bounce between multiple employers, losing track of their multiple super funds as a result.

These same sub-$6000 accounts – of which there are about 10 million in Australia – will also get a fee cut. Passive fees, charged by super funds for collecting and investing your retirement savings, will be capped at 3 per cent on accounts with balances under $6000.

The government will stop super funds from forcing workers under 25 to take out life insurance.

Unnecessary insurance axed

Experts have long argued that young workers without homes and dependents (partners and children) probably had no need for insurance.

Several industry super funds, including the largest, AustralianSuper, had already moved to allow young workers to opt out of insurance.

The government will bolster this by preventing all super funds, retail and industry, from forcing workers under the age of 25 to take out life insurance. From July 2019, life insurance for under-25s will be voluntary.

This could save about five million workers in the vicinity of $3 billion, according to the government.

Exit fees banned

Retirement savers will soon be free to move their super savings into any account they wish, without taking a financial hit as they leave.

Exit fees will be a thing of the past, with the government to ban them outright from July 2019.

Lump sums discouraged

As already noted, Australians like to withdraw their superannuation in a lump sum when they retire, rather than drawing an income from it. Part of this is cultural – and part is a lack of income stream products in Australia.

Tuesday’s budget moved to address this shortfall by putting aside $20.2 million to amend the pension means test rules to “encourage the development and take-up of lifetime retirement income products that can help retirees manage the risk of outliving their savings”.

In simple language, it means the government wants to tempt workers to buy these income stream products so they rely less on the age pension. The most common of these is a life annuity, which workers contribute to during their working lives, in exchange for regular payments when they retire – much like a self-funded pension.

Also, the government will amend the law to require super fund trustees – who oversee funds – to “formulate a retirement income strategy” for their members. This is another attempt to create more annuity-style products.