Zombie super rules to put pressure on funds

The government’s crackdown on “zombie” superannuation accounts will pile pressure on union and ­employer-backed industry funds.

Inactive ­accounts with balances below $6000 will be held in the ATO.

The government’s crackdown on “zombie” superannuation accounts will pile pressure on union and ­employer-backed industry funds ­relying on sky-high rates of lost and inactive member accounts to exit the $2.8 trillion nest egg system.

A last-minute deal with the Greens allowed the Morrison government to secure passage of legislation through the Senate last week that will consolidate $6 billion worth of low-balance inactive super accounts through the Australian Taxation Office and put in place a 3 per cent cap on fees charged to ­accounts with small balances.

After the bills are rubber- stamped by the House of Representatives, as early as this week, the measures will radically ­reshape the economics of the ­nation’s retirement savings system and likely force a wide array of smaller funds to seek mergers with larger funds when they are cut off from the fee revenue ­siphoned from inactive accounts.

A number of the largest bank-run retail funds are rife with inactive accounts, such as wealth giant AMP, which runs two separate trusts where 59 per cent and 43 per cent of membership is considered inactive by the regulator; Westpac’s BT Financial Group’s Lifetime Super, where 57 per cent of accounts are inactive; and ANZ’s OnePath Masterfund, where 42 per cent of members are inactive.

A series of small industry funds governed by union and employer group ­appointees will likely feel the financial strain when inactive ­accounts are vacuumed up by the ATO.

These include the CFMEU-backed $3bn First Super, where 44 per cent of members are in­active, and the $3bn Club Super, which is backed by United Voice and the Australian Workers Union and had 42 per cent of its members considered inactive. The $1bn Meat Industry Employees Superannuation Fund has 36 per cent of its membership inactive, the same rate as the $3bn United Voice-backed Intrust Super Fund.

The $2.5bn Austsafe super, backed by the AWU, which has 32 per cent of its account inactive, has already announced plans to merge this year with the $60bn Sunsuper, which is also backed by the union. However, several funds in the system, including First Super, are reluctant to leave the ­industry or merge even under pressure from the Australian Prudential Regulation Authority.

Under the plan, inactive ­accounts with balances below $6000 will be held in the ATO until combined balances between the seized account and the member’s active account reach $6000.

KPMG superannuation expert Adam Gee said the measures would place significant pressure on fund sustainability, given the impact the changes will have on revenue models, particularly for those funds with large inactive and small account membership.

“Unless funds are able to find material administration cost savings or other operational efficiencies, fees for remaining members could increase as a ­result,” Mr Gee said. However, the government’s new fee cap measure could complicate funds’ ability to claw back ­revenue by raising fees.

Josh Frydenberg has pledged to revive parts of the government’s legislation clamping down on a $3bn life insurance fee gouge by ending automatic cover for members under 25.