|Superannuation fund members are encouraged to take a look at their accounts before 1 July 2019, as a new law starting on this date requires super funds to report and pay inactive low-balance accounts to the Australian Tax Office (ATO). Where possible, the ATO will then proactively consolidate these inactive low-balance accounts into a member's active account, on their behalf.
This change is in accordance with new Protecting Your Super legislation, which has been designed to ensure that people with multiple accounts are protected from having their total super balance eroded by fees and insurance premiums that are charged by each superannuation provider.
SelectingSuper, a superannuation information portal enabled by Rainmaker Information, recommends that consumers review their existing superannuation accounts-which can be done via MyGov-to ensure that their superannuation money is consolidated into the active account of their choice.
"The devil is in the detail with this upcoming automatic consolidation. At face value this is a good thing for many fund members, who are currently getting hit with an array of unnecessary fees and costs," said Giovanni Munoz, Head of Technical Services and Rainmaker Information.
"However, the way in which the ATO has been instructed to allocate the inactive low-balance funds could lead to some detrimental outcomes for many Australians."
The ATO will locate all accounts that have a balance of $6,000 or less that have not been active for the past 16 months. 'Inactive' means there have been no contributions or changes in investment or insurance options for 16 months in a row.
Within 28 days of receiving a fund member's money, the ATO will transfer the money to the member's active account-if they have one, and if the combined balance will be greater than $6,000. If no active account can be found, this money will remain with the ATO until claimed by the individual.
"One element not considered in this move is performance," stated Alex Dunnin, Executive Director of Research at Rainmaker Information.
"This should be a wakeup call for consumers to take another look at whether or not their fund is delivering performance that will set them up for the retirement they want."
Recent Rainmaker Information analysis found a 2:1 ratio gap between the best performing and worst performing fund in the market over the 10 years to June 2018. This means that a poor performing fund could cost the average member more than half a million dollars ($567,000) over their lifetime.
"Although members will be saving in fees, they might now be in a situation where they are wholly invested in a fund that will leave them worse off."
Members can review the best performing funds over three, five and ten years on the SelectingSuper website (for free) and make sure that they are consolidating into a fund that best suits their retirement needs. For a direct comparison of funds, members can also order a comparative report card.
For more information on the automatic consolidation process, check the ATO website.