February 2019 was a big month for superannuation, with more pieces of superannuation related legislation passed than in the previous year or so (which was not a high benchmark).
There were also various big numbers bandied about in debates, Explanatory Memorandums and the like.
Everyone is in favour of evidence-based policy development, especially if evidence can be found to support a position based on belief or ideology. The bureaucrats who have to put together Regulation Impact Statements—which clearly demonstrate that a proposed measure is far superior to any other options—know all about this.
Individuals having more than one superannuation account, with associated additional administration charges, has been an issue receiving policy attention for a considerable period of time.
Estimates of the extent of this problem have been many and varied.
The data have improved over time with annual estimates published by the ATO. At least we no longer have claims (including by regulators who should have known better) that the average number of accounts per person is three (based on what used to be 30 million accounts in the system and around 10 million employees).
There are 15.6 million or so people with super, as account holders include the self-employed, retirees, the unemployed, people temporarily out of the labour force, and expatriates. Many of these latter accounts might be inactive but they certainly are not superfluous.
The notion of the average person also gets some statistical abuse by some commentators. The average Australian is not an amalgam of extremes. The average Australian, as in median or most Australians, has only one superannuation account. 85 per cent have either one or two accounts.
The largest part of the multiple accounts problem comes from the serial offenders, the six per cent or so of Australians who have four, five, six or even more superannuation accounts. Rather than being a function of being young and moving between casual jobs, the incidence of multiple accounts peaks for those in their 40s. Males are also more likely than females to have multiple accounts.
While individuals might have a second account because of objectively sound reasons such as insurance benefits, running a Transition to Retirement strategy, or having a defined benefit account that cannot be rolled over on a change of job. The number of such accounts might be around 5 million in total.
However, four or more accounts is hard to justify. In aggregate this group accounts for some 3.6 million of unnecessary, duplicate accounts. If you include unnecessary accounts held by people with three or more accounts that number goes up to around 6 million accounts.
Reducing the number of duplicate accounts in the system is a worthy objective but it is not something that will improve retirement outcomes for the average Australian. I am not sure that I would want to aspire to be an average Australian in any event.
Somewhat paradoxically, reducing the number of multiple accounts is likely to lead to higher fees for those with only one or two accounts, as fixed costs of funds are spread over fewer accounts. However, variable costs of course are reduced. Various organisations have already forecast declines in revenue received by them for administration services, with the amounts in tens or hundreds of millions of dollars a year.
Some of the other changes, while presented as being beneficial for the average fund member, are more about shifting the allocation of costs and fees rather than reducing the overall costs of the system. Overall costs are likely to increase from a number of recent changes due to increased complexity of compliance and administration. The latest incarnation of member protection is a case in point. While erosion of small account balances by fees is not conducive to inspiring confidence in superannuation, measures to avoid this necessarily lead to increased fees for others. The trust structure for superannuation means that in many cases the allocation of fees is a zero-sum game. Over a lifetime the total fees paid by an individual might not reduce much, or they may even increase.
Given the amount of changes recently legislated the superannuation sector has had a lot to digest and implement, with quite tight timetables in several cases. ASFA will be carefully monitoring developments and, where possible, obtaining clarification on requirements and regulator expectations regarding new and at times complex provisions. Indigestion should be avoided if possible.