May, 2018 – The Federal Budget’s focus on low account balances – and 40% of accounts have less than $6,000 – will have the biggest impact on the shape of super in years. I wrote an overview of the Budget changes last week, but it took a couple of days to sink in that the announced transfer of inactive <$6,000 accounts to the ATO and the 3% cap on fees for <$6,000 accounts in particular would result in major structural change to the industry.
For a start, around 30% of all Super accounts might be transferred to the ATO. There are about 15 million more Super accounts than there are working Australians, so it’s not a bad thing if these accounts are reunited with the active accounts of their owners. And that’s what the ATO plans to do: the question is, how long will it take?
But less accounts are likely to result in more expensive administration fees for individual accounts, and this is something administrators are grappling with. The Link Group has formally notified the Stock Exchange that the announcement may have a material impact on the number of members they administer.
The fee cap is also going to challenge funds with cents-per-member administration fees, and that’s most industry funds. Fee caps and asset based fees are going to be considered, but funds will have to be careful they don’t introduce ‘fees for no service’.
The proposal to have only opt-in insurance for members under 25 is also going to mainly affect low accounts balance accounts.
All in all, these proposals have some merit – the large number of accounts, and the extent of fee erosion on balances have long required attention – but that doesn’t make the introduction of these changes any less difficult.
Written by David Haynes