By Steve Blizard
The Australian Taxation Office (ATO) has enjoyed a super jackpot of more than $700 million, which will have increased to over $1 billion by the end of last month.
And all this at the expense of fund members who have lost track of their superannuation.
The Federal Government’s clawback of workers’ savings has been hidden away in super legislation with the potential for huge consequences.
While much attention has been focused on the big superannuation law changes that were announced in the 2016 federal budget, this latest change has been largely ignored by commentators and the mainstream media.
Under the new legislation that took effect on January 1, all “inactive” superannuation accounts with a balance of less than $6000 will be transferred to “unclaimed monies”.
The ATO has been given the power to seize an estimated 100,000 such managed superannuation accounts where the balance is below $6000.
But this applies only in the event of no activity occurring in the account during the preceding 12 months.
The ATO has identified more than six million super accounts nationwide where the owners are either “uncontactable” by their fund, or where accounts are classed as “inactive” because there have been no deposits made into them for 12 months.
Inactive Super explained
Colby has a super account with a balance of $2,600 on 31 December 2016.
Her super fund has sufficient details to identify Colby, however two items of correspondence sent to Colby’s last known address were returned unclaimed and no contributions or rollovers have been made to the account over the previous 12 months.
The fund has been unable to locate Colby despite making reasonable efforts to do so.
On this basis Colby’s super fund is now a lost member account that must be transferred to the Commissioner of Taxation by 30 April 2017.
Daniel has a super account with a balance of $5,300 on 31 December 2016.
The account was opened by a former employer for the purpose of paying Daniel’s super guarantee contributions under an arrangement between the employer and trustee of the fund.
In April 2011 Daniel left his employer to work overseas.
His member statement was mailed each year to his parent’s Australian home address.
No contributions or rollovers have been made to his account since July 2011 and Daniel had failed to contact his fund since departing Australia.
On this basis Daniel’s super fund is deemed to be a lost member account that must be transferred to the Commissioner of Taxation by 30 April 2017.
For most self-managed super fund trustees, this law change may seem irrelevant.
But this could actually be a dangerous assumption.
SMSF trustees who have held some of their super outside of their own fund, perhaps attracted to group insurance premiums available through industry super funds, not requiring a medical, could be impacted.
If you are in this situation and have not kept a close eye on any secondary super accounts, you may be in for a surprise when the ATO’s enhanced powers take effect.
One problem that arises is that debits to one’s fund for insurance premiums do not count as “activity”.
Any insurance policies tied to super accounts that are transferred to the ATO are automatically cancelled, because the funds are no longer associated with the insurance originator.
Industry estimates indicate that around half the deemed inactive accounts with balances below $6,000 have insurance cover.
The risk to the insured, should they have since developed an uninsurable medical condition, is that their insurance cover may be irreplaceable.
Treasury hits the jackpot
Australia’s total unclaimed superannuation funds stockpile is rapidly approaching a whopping $15 billion.
Of the total amount of super funds deemed as lost, about $3 billion has already been transferred into consolidated revenue.
Jim Minto, while Interim CEO of the Association of Superannuation Funds of Australia (ASFA), said that the aggregate amount of superannuation held by the ATO increased by around $470 million in 2015-2016.
He added that most of this increase was a result of the prior doubling of the threshold for compulsorily transferring lost super accounts from $2000 to $4000 that came into effect on 31 December 2015, when more than 130,000 accounts were transferred to the ATO.
Funds seized by the ATO can be reclaimed via the tax regulator’s website and other online government portals.
But the process for doing so is long-winded.
Worse still, funds held in the Government’s coffers only earn interest at the rate of inflation, meaning there is a significant lost opportunity cost in reduced earnings to the fund member.
For a person who has a $5,000 account seized by the ATO will mean that on average a loss of around $225 annually in earnings compared to what they would receive if that account was consolidated into an active super account.
The ATO has defended this fund seizure, saying that $234 million of super was transferred back to owners in 2015-16.
However, this is a miniscule amount of funds returned members compared to the $14 billion in unclaimed super still held by the ATO, which more than likely will be lodged into consolidated revenue.
There is still a window of opportunity to consolidate lost super accounts valued under $6000, as superannuation fund administrators are not required to transfer inactive funds to unclaimed monies with the ATO until April 2017.
It is also the right time to examine your insurance needs so as to decide if your current level of cover is appropriate.
Email: Steve@blizard.com.au at Roxburgh Securities for assistance in consolidating your lost super.