Smaller Super Account Balances Protected

It’s the first budget in many years with no changes to the superannuation rates, thresholds and contributions caps. That's a good thing.

And the budget contains measures to help protect those with small account balances from having the balances eroded by fees, and full marks to the government for that.

But what happened to the removal of the $450 threshold for the payment of the super guarantee?

Under the super guarantee, employers are required to pay 9.5 per cent in superannuation to every employee over the age of 18 earning more than $450, gross, a month.

A senate inquiry released its recommendations last year with a recommendation to remove the $450 threshold on eligibility for the super guarantee.

The original reason for the threshold was that clunky pay systems used by some small employers would envelop the small employers in red tape if they had to pay small amounts of super to their employees.

However, with the automation of payroll systems and the new SuperStream payments system, it is no longer a red tape issue for employers.

As things stand, someone who has a couple of part-time and casual jobs could be earning a decent amount of money in total, but misses out on a cent of super because each of their jobs pays less than $450 a month.

That the government has failed to act on this issue in the budget is a black mark.

On the positive side, life insurance through super will be made “opt-in” instead of automatic for fund members under the age of 25 or with account balances of less than $6000 or where the account has not received a contribution for 13 months

It is questionable whether most people under 25 need life insurance and small account balances can be eaten away by the insurance premium that comes out of the accounts.

But the cost of the move may be borne by everyone else. Adam Gee, the superannuation advisory partner at KPMG, says modelling suggests that premiums for everyone else could rise by 30 per cent.

That’s because the insurance is provided on a group basis, where the life insured is the average or typical fund member, in terms of age and occupation.

And with the removal of younger, healthier fund members, who are less likely to make claims for death benefits, for example, the overall risk of claims increases.

The government will also protect small balances by capping fees on those accounts with less than $6000 at 3 per cent, when small accounts can have fees that are are least twice that.

Exit fees, which some super funds have when the fund member switches to another super fund, will be banned.

Self-managed super fund trustees get some cost savings with an audit of the fund only required every three years rather than each year, provided there are no outstanding issues with the Tax Office.

And the maximum number of members will increase from four to six, which will allow more family members to be added to the fund.

By John Collett

The Sydney Morning Herald

9 May 2018

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