On 21 June 2018, the Senate referred the provisions of the Treasury Laws
Amendment (Protecting Your Superannuation Package) Bill 2018 (the bill) to the
Economics Legislation Committee (the committee) for inquiry and report by
13 August 2018.
The bill implements the Protecting Your Superannuation package announced
in the 2018–2019 Budget. The overarching objective of the reforms contained in
the bill is to protect individuals' retirement savings from undue erosion,
ultimately increasing Australians' superannuation balances. In particular, the
bill aims to limit the erosion of retirement balances for young and low balance
The bill amends the Superannuation Industry (Supervision) Act 1993
(SIS Act), the Superannuation (Unclaimed Money and Lost Members) Act 1999
(SUMLM Act), Income Tax Assessment Act 1997 (ITAA 1997), and the Taxation
Administration Act 1953 (TAA 1953).
As summarised in the Explanatory Memorandum, the bill seeks to protect
members' superannuation savings from erosion by:
limiting fees so that low balance savings can grow and are
protected from disproportionately high fees;
banning exit fees to remove a barrier to account consolidation;
ensuring that arrangements for insurance in superannuation are appropriate
so that members are not paying for insurance cover that they do not know about
or premiums that inappropriately erode their retirement savings; and
strengthening the ATO's role in reuniting small, inactive
balances to reduce the costs to members and consolidate the accounts of members
that have accrued multiple superannuation accounts.
Following the announcement of the Protecting Your Superannuation package
in the 2018–2019 Budget, the Hon Kelly O'Dwyer MP, Minister for Revenue and
Financial Services, commented that:
Together, these measures build on the Government's
overarching reform agenda for superannuation—an agenda that is focused solely
on improving outcomes for superannuation members. This includes those members
with interrupted work patterns and low incomes—which disproportionately include
women—as well as those who have inadvertently accrued multiple accounts.
On introduction of the bill to Parliament, the Minister acknowledged
that the proposed reforms 'will involve some substantial changes' from an
industry perspective, however emphasised that, by ensuring superannuation
arrangements are appropriate to members' circumstances, the bill is in the best
interest of all Australians:
...I firmly believe that this bill, which will benefit young
members, members with low balances such as low-income earners and members with
multiple accounts, is in the best interest of all Australians.
After all, we must never forget the most important foundation
stone in superannuation—your superannuation is your money.
It is not the government's, not the industries', not the bank
executives', not the shareholders', not the employers', and not the trade
of the inquiry
The committee advertised the inquiry on its website and wrote to
relevant stakeholders and interested parties inviting written submissions by 9
The committee received 34 submissions as well as additional information
and answers to questions on notice, which are listed at Appendix 1.
The committee held a public hearing for the inquiry in Sydney on
20 July 2018. The names of witnesses who appeared at the hearing can be found
at Appendix 2.
References to the Committee Hansard are to the Proof Hansard and page
numbers may vary between Proof and Official Hansard transcripts.
The committee thanks all individuals and organisations who assisted with
the inquiry, especially those who made written submissions and participated in
the public hearing.
Context of amendments
Superannuation plays a central role in funding individuals' retirement
and represents a significant financial asset for many Australians. Today,
Australia's superannuation system has accumulated over $2.6 trillion in assets
collectively owned by nearly 15 million members.
The superannuation system's efficiency and performance is therefore integral to
the wealth and wellbeing Australians and, moreover, is critical to meeting the
economic and fiscal challenges posed by an ageing population.
Erosion of low balance accounts
through fees and insurance premiums
Under the current superannuation regulatory framework following the
removal of the former Member Protection Standards by the Labor Government in
2013, there are no distinct protections from the erosion of retirement savings
through fees and life insurance premiums for low balance accounts.
The Explanatory Memorandum states that:
Low balance account holders are usually young members, who
generally have lower superannuation balances, as well as low income earners
(who disproportionately include women) and seasonal workers. Typically, these
people are disengaged from superannuation and do not actively monitor or
organise their accounts to minimise erosion of balances.
Low balance accounts comprise a significant proportion of the
superannuation system. Treasury analysis using 2015–16 data from the Australian
Taxation Office (ATO) shows that, as at 30 June 2016, there were approximately
9.5 million accounts with balances of $6000 or less. This accounts for roughly
40 per cent of all accounts in the superannuation system. Additionally, of
these low balance accounts, more than 60 per cent had not received a
contribution or rollover within the preceding
Low balance accounts are particularly vulnerable to erosion by fees and
insurance premiums. Fee rules for MySuper products
generally require that fees be charged to all members on the same basis. With
regard to insurance premiums, superannuation fund trustees are generally
required to provide default
MySuper members with default death and total and permanent disability (TPD)
insurance on an opt out basis. Some trustees also bundle default death and TPD
insurance with income protection (IP) insurance unless members choose to opt
Superannuation fund trustees must only offer insurance coverage if it does
not inappropriately erode members' retirement savings. However, as explained in
the explanatory memorandum, this requirement is impeded due to a lack of
visibility of members' other superannuation accounts:
Under the current insurance covenant, trustees must only
offer insurance coverage if it does not inappropriately erode the retirement
savings of members. However, even where trustees comply with this obligation,
they do not have visibility of members' other superannuation accounts with
insurance. In addition, the obligation to provide all MySuper members with opt
out death and TPD insurance means that trustees are required to provide all new
default members with insurance, meaning that multiple accounts with insurance
can be accrued with ease under current settings.
Multiple superannuation accounts
The current default system where members are potentially allocated to a
new superannuation fund each time they begin a new job, as well as past and current
restrictions on members' ability to choose their fund, have resulted in many
individuals holding multiple superannuation accounts. This compounds the
problem of retirement balance erosion through fees and life insurance premiums.
Treasury analysis using 2015–16 data from the ATO shows that, of the
approximately 11 million Australians with insurance in superannuation, about
2.5 million (over 20 per cent) of individuals have duplicate cover. Moreover,
10 per cent of duplicate coverage holders are under 25 years of age.
ATO data also shows that, as at 30 June 2017, approximately 40 per cent of
superannuation account holders had more than one account.
Under the current legislation, responsibility for locating and
consolidating superannuation from multiple accounts generally falls on
individual account holders. Account holders must contact either their
superannuation funds or the ATO (depending on timing of inactivity on the
account) and request consolidation.
Actual consolidation of accounts is therefore dependent on member engagement
and assessment of need.
Overview of the bill
The bill contains three schedules:
Schedule 1—Fees charged to superannuation trustees
Schedule 2—Insurance for superannuation members
Schedule 3—Inactive low-balance accounts and consolidation into
The measures proposed in the bill come into effect from 1 July 2019.
Schedule 1—Fees charged to
Cap on fees and costs
Schedule 1 to the bill prevents trustees of superannuation funds from
charging certain fees and prescribed costs,
exceeding three per cent of the balance of a MySuper or choice product annually,
where the balance of the account is below $6000.
The fees that are capped are administration and investment fees. Administration
and investment fees represent the majority of fees charged by funds. These fees
are incurred by members simply by virtue of holding a product with a
Currently, the SIS Act does not limit the amount of administration fees
or investment fees that can be charged for either MySuper or choice products.
Schedule 1 to the bill amends the general fee rules under Part 11A of the SIS
Act to introduce a 'fee cap' (a maximum of three per cent of a member's account
balance) which restricts the total amount of administration fees, investment fees
and prescribed costs that can be charged where the balance of an account is
less than $6000 at the end of the fund's income year or at the time of account
If a trustee has charged more than the amount allowed under the fee cap
the trustee must refund the excess above the cap within three months of the end
of the fund's income year.
Prohibition on exit fees
Schedule 1 to the bill also amends the general fee rules under the SIS
Act to prevent trustees from charging exit fees (other than a buy-sell spread)
on all superannuation accounts, regardless of a member's account balance.
Under this proposed measure, a trustee must not charge an 'exit fee', which is
a fee related to the disposal of all or part of a member's interest in a fund.
Schedule 2—Insurance for
Currently, under section 68AA of the SIS Act, trustees are required to
provide MySuper members with death and TPD insurance cover on an opt out basis,
unless a reasonable condition applies. There are no similar requirements for
members who hold a choice product; however, some trustees of choice products
choose to provide insurance on an opt out basis.
Schedule 2 to the bill amends the SIS Act to prevent a trustee
from offering or maintaining default insurance cover for certain members unless
the member has elected to obtain or maintain the insurance provided.
The circumstances when a trustee cannot provide opt out insurance for a
member of either a MySuper or choice superannuation account are when:
the member is under the age of 25 and begins to hold the
superannuation account on or after 1 July 2019;
the balance of the account is less than $6000 and has not been
$6000 or more on or after 1 April 2019; or
the account has been inactive for a continuous period of 13
months or more.
For existing members, trustees must notify the affected members of the
changes on or before 1 May 2019 so as to give these members an opportunity to
elect to continue with their insurance cover beyond 1 July 2019 through their
fund. The changes do not apply to existing members under the age of 25, where
the person's account has a balance of $6000 or more and the account has not
been inactive for
From 1 July 2019, the trustee must ensure that each member affected
by these amendments can direct the trustee to take out or maintain their
insurance cover. Directions by members in respect of their insurance
must be made in writing.
Members who elect to maintain insurance in inactive accounts with
balances of less than $6000 will not have their balances transferred to the
Commissioner of Taxation (Commissioner) under the changes contained in Schedule
3 of the bill.
Schedule 3—Inactive low-balance
accounts and consolidation into active accounts
Payments and statements for inactive
The SUMLM Act currently prescribes a number of circumstances under which
a superannuation provider or retirement savings account (RSA) provider must
provide statements and pay amounts to the Commissioner.
Schedule 3 to the bill amends the SUMLM Act to include an additional
circumstance when superannuation and RSA providers must pay the balances of
accounts to the Commissioner. Specifically, where a MySuper account or choice
superannuation account has been inactive for 13 months and the balance of the
account is less than $6000, the balance of that account must be paid to the
Commissioner, unless the member has chosen to opt in to have insurance through
that superannuation account.
Consolidating accounts held by the
Commissioner into active superannuation accounts
Currently, the SUMLM Act only allows the Commissioner to consolidate the
amounts he or she holds for a person with amounts held in a fund when the
person directs the Commissioner to do so. The amendments in Schedule 3 to the bill
also give the Commissioner the power to proactively consolidate the amounts he
or she holds with an active account held by the person in a superannuation fund
where the reunited balance would be greater than $6000.
The initial transfer of inactive low-balance accounts to the
Commissioner will take place during the 2019–20 financial year which will also
be when the Commissioner begins to proactively reunite monies currently held.
The ATO has estimated that it will be able to reunify amounts within a month of
receiving the funds.
Stakeholder consultation on exposure draft legislation to implement the Protecting
Your Super package commenced on Budget night and closed on
29 May 2018. Treasury received 45 submissions in response to this consultation,
eight of which were confidential.
Three policy options were considered during the Treasury consultation.
The preferred option (reflected in the bill) was determined to be the best
approach as it provides the greatest benefit to members at the lowest
PC Inquiry—Efficiency and
competitiveness of Australia's superannuation system
In April 2018, the Productivity Commission (Commission) released its
draft report for the inquiry into the efficiency and competitiveness of the
Australian superannuation system.
Among its draft findings, the Commission found that 'higher fees are
clearly associated with lower net returns over the long term' and 'have a
significant impact on retirement balances'. It noted that:
...an increase of just 0.5 per cent a year in fees would reduce
the retirement balance of a typical worker (starting work today) by a projected
12 per cent (or $100 000).
In assessing the erosion of member balances, the Commission found that:
The superannuation system, primarily due to its policy
settings, does not minimise the unnecessary and undesirable erosion of member
balances. This erosion is substantial in size and regressive in impact.
The Commission identified unintended multiple accounts (which it estimated
at ten million total accounts—one in three accounts in the system) as being the
most egregious driver of balance erosion, finding that this is 'directly costing
members nearly $2.6 billion a year in excess insurance premiums and
The Commission also recommended that exit fees be limited to
With regard to insurance in superannuation, the Commission found that
the deduction of insurance premiums 'can have a material impact on member
balances at retirement', describing this balance erosion as being 'highly
regressive in its impact'.
The Commission's draft report further noted that balance erosion due to the
deduction of insurance premiums:
...is more costly to members with low incomes. It also has a
larger impact on members with intermittent attachment to the labour force, and
those with multiple superannuation accounts with insurance (the latter comprise
about 17 per cent of members).
Additionally, while insurance in superannuation was recognised as
offering good value for many members, it was found that:
For some members, insurance in superannuation is of little or
no value — either because it is ill-suited to their needs or because they are
not able to claim against the policy. Income protection insurance and
unintended multiple insurance policies are the main culprits for policies of
low or no value to members. Younger members and those with intermittent labour
force attachment — groups which commonly have lower incomes — are more likely
to have policies of low or no value to them.
Finally, the Commission suggested that the ATO should be empowered to
clean up the legacy stock of existing multiple accounts in the system,
including by more actively reuniting lost balances with members (unless a
member actively rejects consolidation) and being a sole operator of a 'holding
account' for lost super.
Regulatory Guide 97 review
Regulatory Guide 97: Disclosing fees and costs in PDSs and periodic
statements (RG 97) sets out the Australian Securities and Investments Commission's
(ASIC's) guidance for superannuation funds and managed investment schemes on
how to disclose fees and costs in Product Disclosure Statements (PDSs) and
In November 2017, ASIC announced that it would appoint an external expert
to conduct a review into RG 97. The review was undertaken in response to strong
feedback from across the industry around challenges with the practical
implementation of RG 97.
ASIC released the external report into RG 97 on 24 July 2018. The report
concluded that changes to fees and costs disclosure would be advantageous. It
included discussion around the inconsistencies between the fees and costs
disclosure requirements for superannuation products.
ASIC welcomed the report and agreed that changes to the disclosure
regime are in the interests of consumers and the industry, noting its intention
to release a consultation paper setting out its proposed response to the issues
raised in the report in the first half of the 2018–19 financial year.
The measures in the bill are estimated to have a gain to the budget of
approximately $850 million in fiscal balance terms and around $1.75 billion in
underlying cash balance terms over the forward estimates.
Compatibility with Human Rights
As required under the Human Rights (Parliamentary Scrutiny) Act 2011,
the government has assessed the bill's compatibility with the human rights and
freedoms recognised or declared in the international instruments listed in
section 3 of that Act. The government considers that the bill is compatible.
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