Budget 2018: Superannuation funds to be banned from charging excessive fees
Funds will also be banned from charging automatic insurance fees for low-balance or inactive accounts.
The government announced it will ban superannuation funds from charging exit fees when customers wish to switch funds. Currently, super funds are charging fees of $68 on average when a customer wishes to close the fund and move to another.
Treasurer Scott Morrison said the government will also ban super funds from charging excessive fees on super accounts with balances lower than $6,000. Instead, it will allocate a 3% annual cap on fees for funds with balances lower than this.
Superannuation funds will also be required to switch the default insurance from an opt-out to an opt-in basis for funds with balances lower than $6,000, if the member is under the age of 25 or when the account holder hasn't made a contribution or transaction in more than 13 months. This is to prevent the fund's balance being eaten up by insurance fees, when the member may have forgotten about the fund or have several funds in their name.
The Australian Tax Office (ATO) will be able to identify when an Australian has several inactive funds in their name, and will be given the power to proactively consolidate those funds into the member's current active fund. This way, if someone has numerous accounts opened that they have forgotten about, the ATO can bring them all together to prevent that person paying multiple unnecessary fees across the several accounts.
Who will this affect?
These changes will primarily affect young Australians and low-income earners as younger Australians are the most likely to have smaller super balances lower than $6,000. Also, because younger Australians often have several casual or part-time jobs, they are also the most likely to have several super accounts open in their name, each with a small balance.
The changes to the default insurance options will benefit all Australians under the age of 25. Now, when opening a super account, members under 25 will have to proactively opt-in to have insurance cover included in their policy, rather than the current system which requires them to opt out. AustralianSuper was the first super fund to switch the insurance cover for under 25s to an opt-in rather opt-out basis in January.
A lot of young Australians may not realise just how much they are paying for insurance cover within their super fund, and some may not even realise they are paying for this at all. Plus, young Australians under 25 are less likely to benefit from these insurances in the first place.
When will this happen?
These changes will be implemented 1 July 2019, giving the super funds just over 12 months to comply.