Government plans to clamp down on savers’ accidental multiple accounts could lead to higher fees, warns superannuation consultant Rice Warner.
In a report today, the firm said proposals from the Productivity Commission and the government
could trigger higher fees.
What have they proposed?
The government and the Productivity Commission have both proposed for the ATO to automatically find and consolidate savers’ lost and inactive accounts below $6,000.
The Productivity Commission has also recommended new workforce entrants only be defaulted into a super fund once to stop the proliferation of multiple accounts.
Currently, workers can easily accrue multiple accounts and multiple sets of fees by failing to use the same superannuation fund at all their jobs.
But Rice Warner believes that if these government proposals come into effect, there will likely be 26 per cent fewer funds once the government changes have taken effect.
And if the recommendations that workforce entrants are only defaulted into a fund once come into effect, the number of funds will be 32 per cent lower.
“The removal of five million unnecessary accounts will reduce annual dollar-based fees charged by superannuation funds by around $350 million,” Rice Warner hypothesised.
This means funds – which previously relied in some part on inactive funds’ fees to cross-subsidise active funds – will have a lower margin.
“Fees will need to rise to provide the same services to members,” the consultant warned.
“This will make many smaller funds unviable, and we have already started to see merger activity as these funds seek to avoid the price increases.”
However, Rice Warner added, this fee increase isn’t as significant as the benefits of fund consolidation.
“We know that members take an active interest in their superannuation once it reaches a reasonable balance. Consolidation of accounts will grow the member’s balance more quickly and engagement should occur earlier.”
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