Case Studies — [PDF 106KB]
Matthew is 30 years old and works full time as an office manager in a small company, where he earns $65,000 per year. When he joined the company he did not choose a superannuation fund, so his contributions are made to the default fund. Fees in this fund are 0.97 per cent of assets.
The combined MySuper and SuperStream reforms will mean that fees will drop by 40 per cent to 0.59 per cent of assets with most of the change as a result of MySuper. By the time he retires at the age of 67, Matthew’s final real superannuation balance will be around $634,000 – or $40,000 more than if the MySuper and SuperStream reforms were not implemented.
Making account consolidation easier (Recommendations 9.11 (a) and 9.12)
On average Australians have three superannuation accounts. Multiple accounts increase the potential for members to lose their superannuation, make switching accounts more difficult, and can also mean members pay unnecessary fees and charges, including multiple insurance premiums.
Currently, members must contact their fund to commence the consolidation process. It is also more costly for funds to identify members who may have multiple accounts, because they are unable to use tax file numbers, in the first instance, to locate multiple accounts for their members. The case study below illustrates how the Stronger Super reforms will make account consolidation easier.
Rhonda is not aware she has two accounts with the same fund (Fund A). Following the Stronger Super reforms, Fund A will be able to contact Rhonda alerting her to the fact she has two accounts with them, and request her permission to consolidate them.
Rhonda agrees to combine the accounts and asks her fund to combine them. This will make it easier for her to keep track of her superannuation savings and to change accounts in the future. It could also result in lower overall fees and charges as she only has to pay fixed fees (such as some insurance premiums) on one account instead of two.
Saving employers’ time (Recommendations 9.4 and 9.8)
Mary is the owner of a small business which employs 15 staff. As Mary’s employees each use a different fund, Mary must make payments to 15 different funds.
Currently each fund has its own data forms and payment systems meaning Mary faces a considerable time and paperwork burden in satisfying her superannuation obligations. This often means manually writing cheques which she then mails to the respective funds accompanied by employee data.
As a result of the SuperStream reforms, Mary will be able to use one standardised online form to make superannuation payments for all the superannuation funds to which she makes contributions.
Reducing the incidence of illegal early release of superannuation (Recommendation 8.24)
Superannuation members can be the target of illegal schemes that promise them early access to their superannuation. The promoters of these schemes charge significant fees and do not advise the fund member that accessing superannuation before the defined preservation age (60 years of age for most Australians) is illegal.
Jack is contacted by a promoter of illegal early release schemes who tells Jack they can help him access his superannuation early if Jack authorises them to rollover his money into a self managed superannuation fund (SMSF). On Jack’s behalf, XYZ Super would register an SMSF with Jack as the sole member and sole director of the corporate trustee. They would also organise the transfer of his superannuation from his existing fund, on the basis that it is being transferred to his SMSF. XYZ Super will then charge a 30 per cent fee to release the benefits to Jack before the defined preservation age.
Jack doesn’t realise that he would be acting illegally by accessing his superannuation in this way and he is also being charged a large fee that will considerably deplete his superannuation savings.
Currently, the promoter of the XYZ Super illegal early release scheme could only have been penalised if it could be proven that they were providing unlicensed financial advice. Following the Stronger Super reforms, these promoters will now be subject to criminal and civil penalties for promoting the illegal early release of superannuation.