EMPLOYER ACTION CODE: ACT
The superannuation industry has received significant publicity recently as a result of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Government regulation is also imposing considerable change in 2019. Superannuation funds and employers are likely to be affected to varying extents depending on their particular superannuation arrangement and the profile of employees.
- The Royal Commission exposed misconduct at a number of financial institutions offering retail superannuation funds, including cases of “fees for no service,” and has asked the regulator to establish whether any civil or criminal breaches had occurred. Legislative changes based on the commission’s broader recommendations are expected.
- Regulatory changes to superannuation fees and insurance cover will be effective July 1, 2019:
- Superannuation accounts with balances under $6,000 will have their annual administration and investment fees capped at 3% of the account value.
- Exit fees (i.e., a fee, other than a buy/sell spread, related to the disposal of all or part of a member’s interests in a superannuation fund) may no longer be charged to members by trustees.
- Trustees will be prohibited from providing risk insurance cover to Choice or MySuper members (not defined benefit members) whose accounts have been inactive for 16 months, unless the member formally elects otherwise.
- Inactive accounts under $6,000 will be required to be transferred to the Australian Tax Office, which will then consolidate the inactive account with the member’s current active superannuation account (if any).
Companies should review their current superannuation vendors and institutions against the findings of the Royal Commission, first for any impact on current employees and, second, to assess cultural fit with the company. Risk considerations should be widened to include the risk of being associated with entities that have been referred to regulators by the commission due to misconduct findings.
Companies should ask their default superannuation fund and any other funds commonly used by their employees to report to them any changes they anticipate in the second half of this year on administration fees, insurance premiums, insurance coverage and automatic insurance provisions for new hires, and evaluate whether this warrants communication to employees or a change to their default super fund.