House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Chapter 4
Schedule 4 - Superannuation

Outline of chapter

4.1 Schedule 4 to the Bill amends the Superannuation (Unclaimed Money and Lost Members) Act 1999 (SUMLMA) to change arrangements for the transfer of lost member accounts to the Commissioner of Taxation (Commissioner) and to provide for the payment of interest on unclaimed superannuation money.

4.2 Small lost accounts with balances of less than $2,000 and accounts of unidentifiable members that have been inactive for 12 months will be required to be paid to the Commissioner. Interest will also be paid on unclaimed superannuation money at the time this money is claimed. This will accrue and be payable from 1 July 2013 on all unclaimed superannuation money.

4.3 All references to legislative provisions in this chapter are references to the SUMLMA unless otherwise stated.

Context of amendments

4.4 Superannuation providers are required to transfer unclaimed monies to the Commissioner. The term 'unclaimed superannuation monies' refers to three types of unclaimed money:

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'general' unclaimed superannuation money;

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unclaimed superannuation of former temporary residents; and

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lost member accounts, that is, small accounts of lost members, and inactive accounts of unidentifiable members.

4.5 The unclaimed monies provisions do not apply to defined benefit interests.

4.6 Individuals are able to claim back monies from the Commissioner at any time. Interest on these monies is currently only payable in the case of former temporary residents who become an Australian or New Zealand citizen or hold a permanent resident visa.

4.7 Superannuation providers must give the Commissioner details relating to small accounts of lost members, and inactive accounts of unidentifiable lost members, and pay the value of these accounts to the Commissioner. These details are currently provided to the Commissioner as at 31 December and 30 June each year, with payments then being payable to the Commissioner on 30 April and 31 October each year respectively.

4.8 The new arrangements will enhance the current strategies employed by the ATO to reunite members with lost super accounts, aiming to reduce the number of unnecessary and inactive accounts.

4.9 Transferring more small lost accounts to the ATO will ensure they are properly protected from being eroded by fees and charges. The payment of interest from 1 July 2013 on amounts reclaimed from the ATO will further boost individuals' retirement savings.

4.10 The Department of the Treasury estimates that under the current rules, a 20-year-old with $1,000 in superannuation can unknowingly have their super savings eroded to just $418 after five years by a range of fees and deductions. Fees and insurance charges typically exceed average investment earnings even for accounts with $2,000. A 30-year-old with $2,000 can unknowingly have their super savings eroded to just $1,250 after five years.

4.11 As a result of the new arrangements, a 20-year-old with $1,000 currently inactive in super, is expected to be able to claim $1,131 from the ATO after five years (assuming average Consumer Price Index (CPI) inflation of 2.5 per cent), a boost to their superannuation savings of over $700 compared with current arrangements. A 30-year-old with $2,000 is expected to be able to claim $2,263 from the ATO after five years, a boost to their superannuation savings of over $1,000 compared with current arrangements.

Summary of new law

4.12 The balance threshold below which small lost accounts will be required to be transferred to the Commissioner will increase from $200 to $2,000. The period of inactivity before inactive accounts of unidentifiable members will be required to be transferred to the Commissioner will be decreased from five years to 12 months.

4.13 From 1 July 2013, the Commissioner must pay interest on all unclaimed superannuation money payments in respect of individuals.

4.14 The amount of interest will be worked out in accordance with the regulations. The regulations may prescribe different rates for different periods over which interest accrues. It is intended that interest will be calculated in accordance with the Consumer Price Index (CPI) and that a nil rate will be able to be prescribed where the CPI does not change between given periods.

Comparison of key features of new law and current law

Detailed explanation of new law

4.15 The balance threshold below which small accounts of lost members will be required to be transferred to the Commissioner will increase from $200 to $2,000. [Schedule 4, item 5, paragraph 24(1)(b)]

4.16 The period of inactivity before inactive accounts of unidentifiable members will be required to be transferred to the Commissioner will decrease from five year to 12 months. The superannuation provider will still need to be satisfied that it will never be possible for the provider, having regard to information reasonably available to the provider, to pay an amount to the member. [Schedule 4, item 6, paragraph 24(2)(b)]

Example 4.1 : A small balance account that is lost because it is uncontactable.

Jack has an account with a super fund with an account balance of $1,900. The fund has sufficient details to identify Jack, however two pieces of correspondence sent to him have been returned unclaimed. On this basis, Jack's account is lost, and on the next reporting date the fund must report and pay the balance of the account to the ATO.

Example 4.2 : A small balance account that is lost because it is inactive.

Poppy has an account with a super fund with an account balance of $1,400. The fund has sufficient details to identify Poppy, however her account has not received any contributions or rollovers within the last five years. On this basis, Poppy's account is lost, and on the next reporting date the fund must report and pay the balance of the account to the ATO.

Example 4.3 : A small balance account that is not lost.

Tabbles has an account with a super fund with an account balance of $1,700. The fund has sufficient details to identify Tabbles, and correspondence sent to Tabbles is not being returned unclaimed to the fund. Tabbles' account has not received any contributions for over a year, as he is on an extended break from the workforce. Tabbles' account is not lost at this stage. It would need to be inactive for a five year period before being deemed lost.

Example 4.4 : An account of an unidentifiable member that is lost.

ABC Super fund has an accumulation account for J Smith of $3,500. J Smith's account has not received any contributions or rollovers within the last 12 months. As the trustee of ABC Super has no address, no date of birth, no tax file number and no employer details, the trustee has formed the view that it would never be possible for the fund to pay J Smith. Consequently, J Smith's account would be classified as a lost member account on 31 December 2012 and transferred to the ATO by 30 April 2013.

4.17 The Bill amends the operation of the SUMLMA to require the Commissioner to pay interest on payments of all unclaimed superannuation money that the Commissioner makes in respect of an individual under the general, former temporary resident, and lost member unclaimed money provisions from 1 July 2013.

4.18 From 1 July 2013 interest will be paid under newly inserted subsection 24G(3A) or 24G(3B) in relation to lost member amounts paid by the Commissioner under 24G(2). This interest does not accrue in relation to the periods before 1 July 2013. The amount of interest will be worked out in accordance with the regulations. The regulations may prescribe different rates for different periods over which interest accrues. [Schedule 4, item 7, subsections 24G(3A), (3B), (3C), (3D)]

4.19 From 1 July 2013 interest will be paid under newly inserted subsection 17(2AB) or 17(2AC) in relation to general unclaimed money paid by the Commissioner under subsection 17(2). This interest does not accrue in relation to the periods before 1 July 2013. The amount of interest will be worked out in accordance with the regulations. The regulations may prescribe different rates for different periods over which interest accrues. [Schedule 4, item 1, subsections 17(2AB), (2AC), (2AD), (2AE)]

4.20 From 1 July 2013 interest will be paid under newly inserted subsection 20H(2AA) in relation to all unclaimed money payments for former temporary residents under subsection 20H(2). The amount of interest will be worked out in accordance with the regulations. The regulations may prescribe different rates for different periods over which interest accrues. [Schedule 4, items 2, 3 and 4, subsections 20H(2AA), (2AB), (2A), paragraph 20H(3)(b)]

4.21 The current interest provisions for certain former temporary residents in subsection 20H(2A) will only apply to payments made before 1 July 2013. Regulations made for the purposes of newly inserted subsection (2AA) may prescribe a different rate of interest for the accrual of interest for certain temporary residents prior to 1 July 2013.

Application and transitional provisions

4.22 The amendments in this Chapter will commence the day after the Act receives the Royal Assent.