The Association of Superannuation Funds of Australia (ASFA) said tonight’s Federal Budget has bolstered confidence in superannuation by not making any changes to the taxation settings.
However, the carve-out of young people from insurance will have a significant impact, particularly on those in high risk occupations and raises the potential for a number of unintended consequences.
Similarly, ASFA is concerned about the transfer of low superannuation balances to the ATO.
The Government has announced significant changes to insurance in superannuation, with insurance to move to an opt-in basis for new members under the age of 25; members with balances less than $6000; and members whose accounts have not received a contribution for 13 months and are inactive.
“Insurance in superannuation is one of the most cost and tax effective options to provide protection, particularly for the young and low income earners,” said ASFA CEO, Dr Martin Fahy.
“Many young people have dependants and financial commitments so in the instance of a tragic event occurring, particularly disablement early in life, having insurance in place is extremely valuable.
“Moving to an opt-in model puts insurance coverage at risk for this segment.
“The industry is implementing a Code of Practice that will address issues of duplicate insurance cover and balance erosion.
“ASFA’s view has been that trustees should retain the flexibility to provide insurance benefits that are in the best interests of what is commonly a like group of members with their own unique circumstances and insurance risks.”
The Government announced that the ATO will expand its data matching processes to proactively reunite low balance inactive and lost accounts held by the ATO with members’ active accounts.
“ASFA is pleased that the accounts held by the ATO will be re-united with members’ active accounts.
However ASFA considers that rather than be transferred to the ATO, money should be reunited in active accounts because once they are sitting in consolidated revenue with the Government they are only earning CPI rather than market returns.”
ASFA also notes the timeframe for transferring inactive accounts to the ATO has been significantly decreased from 5 years to 13 months.
“There are legitimate reasons people may hold inactive accounts, for example taking time out of the workforce to care for children or family, or to maintain insurance coverage.”
The Government has announced a number of measures to support the provision of longevity retirement products. Importantly the original proposal by the Department of Social Security (DSS) to apply a relatively harsh age pension means test for such products has been modified in line with ASFA’s proposals.
The proposal for a retirement covenant requiring funds to offer CIPRs to retiring fund members is more contentious. ASFA will engage in the consultations that have been foreshadowed.
“Choice and innovation in retirement products is important but funds should not be forced to offer products that may not be suitable for their members or have very limited take up.”
At a time when we are trying to encourage more people to be self-funded in retirement, ASFA is pleased that there have been no further changes to the taxation of superannuation and that there is an implicit ongoing commitment to increase the Superannuation Guarantee to 12 per cent.
"It’s important that Australians have confidence in this world class superannuation system, and leaving the taxation settings alone is an important step in ensuring Australians remain optimistic about the future,” concluded Dr Fahy.
For further information, please contact:
Katrina Horrobin, 0451 949 300.
ASFA is the peak policy, research and advocacy body for Australia’s superannuation industry. It is a not-for-profit, sector-neutral and non-party political, national organisation. ASFA’s mission is to continuously improve the superannuation system so people can live in retirement with increasing prosperity.