There are an estimated five million lost or inactive superannuation accounts held by the Australian Taxation Office (ATO) worth a combined $6.2 billion. The ATO pays interest on these balances in line with the annual inflation rate, meaning the money earns less than one-sixth of the interest it would have if it had remained in a super fund.
Super funds are legally required to turn over any inactive accounts with balances of less than $6000 to the ATO so they can attempt to return the money to the owner using data matching. The aim is to not have small account balances that may have been forgotten depleted by yearly administration fees.
While the concept is sound, superannuation industry figures say that for higher balances the interest lost dwarfs the money saved on admin fees. The annual inflation rate sits at around 1.1 per cent, while the average return on a super funds is about 7 per cent, as reported by the SMH.
By law, the ATO can only return money to an ‘active’ account, which is defined as one that has received contributions in the current or previous financial year.
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The Association of Superannuation Funds of Australia (ASFA) says the law should be changed to also allow for the money to be returned to an inactive account if there is no current account.
“ASFA recommends that the ATO reunite amounts it holds whenever it can identify another account in a superannuation fund, including inactive accounts, where the combined balance will be above $6000,” ASFA says in a statement.
“In many cases, the ATO can match such accounts to a super account held by an individual, but the law only allows the ATO to forward a balance when the superannuation account proper is classified as active.
“The ATO applies an interest rate to the balances it holds, which is equivalent to the increase in the Consumer Price Index (CPI), or 1.1 per cent in the 12 months to March 2021. In contrast, the average investment return of superannuation funds is around 7 per cent per year, with the year to June 2021 returning an extraordinary 20 per cent.”
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The Morrison government’s new Your Future, Your Super legislation is, in part, aimed at reducing the number of lost or abandoned super accounts and returning the funds to their owners.
“The Your Future, Your Super reforms are the most significant since the introduction of compulsory superannuation in 1992 and build on the government’s prior reforms, which have included consolidating 3.5 million unintended multiple accounts worth almost $4.7 billion,” federal Treasurer Josh Frydenberg said in a statement.
ASFA deputy CEO Glen McCrea commends the government’s recent approach to the issue of multiple abandoned super accounts, but laments the gains lost by the money’s owners.
He told the SMH the money should only be transferred if the combined balance of two accounts is above $6000, to protect the balance from administration fees.
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ASFA commends the effort to tackle unwanted multiple accounts, noting that the number of lost and inactive super accounts has been cut by 13 million since 2015.
However, it estimates that superannuants stood to earn investment returns in the order of $700 million in the past year if the $3.6 billion ATO-held balances were reunited with active accounts.
To search for lost super, go to ato.gov.au.
Could you have any lost or abandoned super accounts? Have you checked? Share your experiences in the comments section below.
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