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Projected 6.9 Million Inactive Superannuation Accounts Could Be Consolidated Into Active Accounts, Says Shorten

Posted: 22 Feb 2012

A projected 6.9 million inactive, low-balance superannuation accounts could be consolidated into their owners’ active accounts, generating savings for both members and industry, according to Minister for Financial Services and Superannuation Bill Shorten.

“What we want to do is get down the number of accounts, because we think there is a cost being borne by consumers by having multiple accounts in many cases of small amounts,” Shorten said at a Melbourne briefing. “We see that the development of auto-consolidation as being a necessary and overdue step to improve the efficiency of the Australian superannuation system.”

Shorten released research conducted by the Financial Services Council (FSC) and technology provider DST Global Solutions that concluded that there are 6.9m inactive accounts out of a total 28m accounts, or 25%. Under the government’s Superstream policy, a subset of the overarching reforms in the Stronger Super package, accounts with a balance of less than AU$1,000 that have not seen contributions for two or more years will be automatically consolidated with an active account unless a member opts out. To facilitate the transaction, the tax file number (TFN) will be used as the unique identifier. This consolidation will begin in January 2014.

Auto-consolidation is expected to save the superannuation industry AU$20 billion over the next 10 years with costs of AU$1 billion associated with the process, Shorten said. Philip Hogan, managing director, Asia Pacific at DST Global Solutions, said that the financial services cited the need for common data standards for intra-industry communication and communication with the Australian Tax Office as two industry concerns.

“We became involved because we knew that to affect the Stronger Super plans, it was going to be heavily dependent on the correct application of technology,” Hogan said. “The research confirmed that. In fact, all the investment institutions we surveyed unanimously confirmed that technology is the greatest challenge.”

FSC and DST surveyed over 7.2m retail and corporate superannuation, and found that 31% of accounts – corresponding to 8.8 million accounts on an industry basis – contain a balance of less than AU$1,000. Of the 8.8 million accounts, 22% are active, meaning that the remaining 6.9 million inactive accounts will be eligible for auto-consolidation. Industry superannuation funds were not part of the survey, but consolidation from industry funds is expected to contribute to a vast decrease in the number of accounts.

“The Superstream measures will deliver significant benefits to a great many Australians, particularly those who take very little interest in their super and may have amassed multiple accounts as they have changed jobs over the years,” said Fiona Reynolds, CEO of the Australian Institute of Superannuation Trustees (AIST). “The entire industry has welcomed these reforms but there is a lot to do between now and the auto-consolidation start date of July 2014. The changes will require a fundamental review of administration and insurance arrangements by funds. Even the most generous estimates of the number of super accounts that are needed in our current system is around 18m. So on that figure alone, we could easily see 10 million accounts disappear once these measures are activated.”

(RA)

If you have any comments about this story or news tips, contact Christopher Gohlke in New York at cgohlke@globalcustodian.com or Janet Du Chenne in London at jduchenne@globalcustodian.com.