ASIC has called on superannuation trustees to provide helpful and balanced communications to their members regarding the Protecting Your Super package (PYSP) of reforms, which are due to take effect on 1 July 2019.
The PYSP reforms are designed to protect the superannuation savings of Australians from erosion due to inappropriate fees and insurance premiums as well as reduce unintended multiple low balance accounts. The reforms involve the following changes:
- Insurance will be opt-in for members whose accounts have been inactive for 16 months.
- Fund members with balances under $6,000 whose accounts have been inactive for 16 months will have their accounts paid to the Australian Tax Office (ATO). The ATO will take proactive steps to consolidate this with the members’ active super fund.
- Fee caps will be imposed on certain fees for account balances under $6,000.
- Exit fees will not be charged for moving money from a superannuation account.
ASIC Commissioner Danielle Press said, ‘Erosion of superannuation through unnecessary fees and premiums for potentially unsuitable insurance is a significant issue for many Australians.
‘Most consumers are not aware of the fees and insurance premiums charged to their superannuation accounts or the steps they can take to avoid unnecessary reduction in their super balance.
‘The PYSP changes will encourage the consolidation of multiple low-balance superannuation accounts and help ensure members have insurance arrangements that are suitable for them without unnecessarily eroding their super balance,’ Ms Press said.
In its recent communication to superannuation industry associations, ASIC reinforced that any information provided to members in implementing the changes is balanced and factual, not misleading.
Ms Press said, ‘ASIC expects superannuation trustees to implement the changes in a timely manner and communicate responsibly – their communications need to help their members.
‘It is not appropriate for trustees to encourage all members to maintain insurance – many members with inactive accounts will be better off allowing the insurance to lapse. Similarly, trustees should not be urging all members with low-balance accounts to keep their account within the fund as this may not be in the best interests of members,’ Ms Press said.
ASIC may take action in relation to trustees’ communications regarding the PYSP where trustees break the law through misleading communications.
‘How a trustee communicates with their members about the PYSP changes will give us an indication of the trustee’s commitment to members’ best interests,’ Ms Press said.
ASIC is working closely with the Australian Prudential Regulation Authority and the ATO to ensure the PYSP legislative changes are implemented appropriately.
The changes mean that the ATO has the power to reunite members with any lost super that the ATO holds. The ATO estimates that approximately three million accounts worth approximately $6 billion will be proactively consolidated as a result of these reforms.
ASIC has also provided consumer information on the PYSP changes on its MoneySmart website at the following links:
Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 received royal assent on 12 March and associated regulations commenced on 6 April 2019.
The relevant Explanatory Memorandum identifies a number of reasons for the legislative changes, including that consumers have typically shown high levels of disengagement towards superannuation and often have multiple superannuation accounts, which means multiple sets of fees and insurance premiums.
The recent Productivity Commission’s Superannuation: Assessing Efficiency and Competitiveness report found that one third of all accounts (approximately 10 million) are unintended duplicate accounts, eroding member benefits by up to $2.6 billion each year in unnecessary fees and insurance.
The Commission also noted that balance erosion as a result of insurance premiums and multiple accounts may have a significant effect on the retirement outcomes of consumers. For instance, the report indicated that for many low-income members, their super balance at retirement could be eroded by 14 per cent because of inappropriate insurance premiums.