Budget takes aim at super fund fees and charges
The government has announced plans to introduce a 3 per cent annual cap on passive fees charged by superannuation funds on low balance accounts and ban exit fees for all superannuation accounts.
The budget papers said the government intends to introduce a 3 per cent annual cap on passive fees charged by superannuation funds on accounts with balances below $6,000 and will ban exit fees on all superannuation accounts in order to better protect superannuation balances.
NowInfinity technical director Julie Dolan said it is unclear whether these measures are part of the fallout of the royal commission, given that some of the evidence heard by the commission was related to exit fees in superannuation funds, but says these issues around fees were likely “already brewing beforehand”.
The government also wants to change the insurance arrangements for certain cohorts of superannuation members.
“Insurance within superannuation will move from a default framework to be offered on an opt-in basis for: members with low balances of less than $6,000, members under the age of 25 years; and members whose accounts have not received a contribution in 13 months and are inactive,” the budget papers said.
“These changes will protect the retirement savings of young people and those with low balances by ensuring their superannuation is not unnecessarily eroded by premiums on insurance policies they do not need or are not aware of.”
The changes are expected to take effect on 1 July 2019 — affected superannuants will have a period of 14 months to decide whether they will opt-in to their existing cover or allow to switch off, according to Treasury.
Fitzpatricks Private Wealth head of strategic advice Colin Lewis said this will mean that life insurance is an opt-in arrangement rather than being automatically applied to member accounts.
“Potentially they don't need insurance at that point so they're paying for something they don't really need and they would have opted out of it in the first place if given the chance,” explained Mr Lewis.
Others such as Russell Mason from Deloitte expressed concerns that taking insurance out of super for those with small balances, or those under 25 years, could mean there are a lot of people who will become uninsured who may not mean to be.
“Younger members with dependents may well become inadvertently uninsured,” he said.