Budget 2018 - Changes to superannuation featured

2018 Budget – Superannuation changes

The Treasurer handed down his third budget and forecast a return to surplus by 2019/20. There were a number of proposals that impact superannuation – in our view some are positive and some not so positive.

Insurance for members under 25 or with low balances - Superannuation funds will be required to only offer insurance on an opt in basis where accounts have balances below $6,000; or where new members are under 25 years old; or the account has been inactive for at least 13 months.  This measure is due to come in from 1 July 2019.

Whilst we agree that the industry should adopt measures to stop member’s retirement savings from being eroded, we feel that this solution under values the benefit of insurance.

The proposal that default insurance cover should not be provided to those under the age of 25 raises some concern.  We all know that most young people will not make a choice about insurance or superannuation, so the vast majority of those under the age of 25 will have no insurance cover at all, therefore any of these people that are affected by an event that leads to total or permanent incapacitation will not have the benefit of the insurance through their superannuation to fall back on.

This proposed policy also introduces the concept that insurance cover is tied to the amount of money that is in a superannuation account, as opposed to being related to whether an individual is working or not.  Potentially all new entrants into the workforce or those with broken work patterns will not have insurance cover for long periods of their life.   We believe that this increases the risk that these individuals will not benefit from death or TPD cover.

Ban on exit fees - From 1 July 2019, superannuation funds will be banned from charging exit fees for any account.

Prime Super welcomes this measure. We removed our exit fee many years ago as we believe people should not be penalised for choosing a different super fund.

Inactive accounts - All accounts where balances are below $6,000 and no contribution has been received for 13 months will be required to be transferred to the Australian Taxation Office (ATO) and the ATO will be given powers to reunite ATO-held accounts with the member’s other active super account/s where possible.  It is proposed that the first transfer will take place on 30 June 2019.

We support measures that seek to re-unite people with their lost super and to address the problem of multiple accounts within the superannuation industry.  However, it is important that individuals fully understand the outcome of the consolidation of their superannuation, and the benefits of the insurance cover that they will no longer receive through their superannuation.  In some cases an individual may have a much better outcome through having a second small superannuation account balance with insurance than just having one superannuation account.

Reduced fees for members with low account balances - The government is proposing a maximum cap on administration and investment fees charged on superannuation accounts with balances of $6,000 or less, at 3 per cent of the account balance.  It is proposed that this measure will take place from 1 July 2019.

We would like to see more information on this proposed measure to understand how this can work in practice and remain equitable for all members.  This measure is some more “Back to the Future” policy, as it is essentially reintroducing member protection requirements for low account balances, which was removed a number of years ago.

Want more information? 

The full package of Budget announcements is at https://www.budget.gov.au/ which includes a forecast surplus by 2019/20. Important to note always is that the Budget announcement includes proposed reform. Prime Super will keep you informed on progress on the super-related reforms as they occur.