12 Apr 2019
A concerning phone call with the ATO
By Emily Matthews | Financial Advisor at Future Key Financial

A couple of weeks ago, an Agent form the Australian Taxation Office (ATO) contacted us for feedback on their new strategy to have inactive superannuation balances paid to the ATO. They plan to enact this strategy as of 1 July 2019.

This initiative will enforce superannuation fund administrators to report and pay inactive, low balance superannuation accounts to the ATO. The ATO will then consolidate the unclaimed superannuation money into an active superannuation fund for the individual, without the individual requesting it.

Since the announcement of this initiative, we and many other financial advisers across Australia have held reservations and concerns in relation to this new initiative.

When the ATO contacted us to discuss their proposed process to enact this strategy, we welcomed the discussion with open arms.

We started the conversation by clarifying what the ATO “defined” as inactive superannuation. The ATO Representative Agent confirmed the following criteria meets their definition of an “inactive superannuation fund”:

  • An account that has a balance less than $6,000; or

  • An account which has not received contributions in the previous 13-months.

The above is incredibly concerning. Here’s why:

  1. A low balance super fund may be strategically maintained for a number of reasons.
    • A common strategy advisers implement for clients it to keep old superannuation funds open, where a superior insurance policy exists.
    • A small balance of less than $6,000 may be retained to cover insurance premiums payable by the superannuation account to ensure the insurance policy remains active.
    • By closing this superannuation account, the insurance policies will be automatically cancelled. The member could then end up in a worse position. If this happened, this consolidation would not be in the best interest of the member.
  2. This 13-month timeframe is much too short.
    • There could be any number of reasons why a superannuation account has not received a contribution over a 13-month period, such as:
      1. A person may have lost their job and been unable to obtain a new role within that time period.
      2. A person could have taken maternity leave for more than 13-months.
      3. A person could have taken a long holiday.
      4. A person may be unable to work due to injury or illness.
      5. An employer may owe them super which has not yet been paid into their account.
      6. A member could be overseas and/or temporarily relocating overseas.
      7. A member could have reduced earnings and therefore do not qualify for super guarantee.

Closing a superannuation account due to nil contributions over a 13-months period is ludicrous. We expressed these concerns among others.

We then proceeded to discuss the draft correspondence the ATO plan to use to notify the individuals of the super consolidation.

The correspondence is vague and uninformative.

The ATO’s draft correspondence consisted of a letter to be physically posted, an email redirecting you to your myGov account to then open a copy of the letter physically mailed to you and a text-message which again, was very vague.

Although mildly impressed the ATO considered three avenues of contact, we were very unimpressed with the content. Without repeating the exact wording, the correspondence essentially said:

We have found your unclaimed superannuation money and have consolidated this for you.

That’s it. We therefore had a multitude of concerns surrounding this.

  1. This correspondence suggested the ATO has already taken the initiative to consolidate the person’s superannuation accounts. We confirmed with the ATO Rep that this was the only planned correspondence to be sent. And yes, by that point, the superannuation monies would be consolidated.
  2. Why did the recipient not get prior notification from the ATO that their superannuation money was going to be consolidated?
  3. Why is there no opt-out option?
  4. How is the ATO choosing the superannuation fund to consolidate into?
  5. How do they know if consolidating super accounts are in the person’s best interest?

—-Case Study:

Assume the ATO continue with their current correspondence and process and don’t take any of our suggestions into consideration.

Say a person established a superannuation account in 2015. The superannuation account is not being used to receive current contributions but has been retained to fund insurance premiums for insurance cover in the fund. The person had no pre-existing conditions and therefore had no loadings or exclusions on the super funded insurance policies.

The person experienced a medical event in 2018 which disallows them from taking out any new insurance cover without exclusions.

It’s 1 July 2019 and the ATO has closed this superannuation fund and consolidated it with another “active” fund. The ATO issue a notification after enforcing the consolidation.

The person suffers from a medical event and would meet a claimable definition for their insurance products held in their superannuation account, opened in 2015.

The person is unable to make an insurance claim because the ATO has consolidated their “inactive” superannuation fund into their “active” superannuation fund.

We suggested that the ATO consider an initial and subsequent notification detailing the following:

  1. An Introduction of the initiative to the recipient. Suggested wording: “As per the legislation enforcing from 1-July-2019, all superannuation fund administrators will be liable to report and pay inactive, low balance superannuation accounts to the ATO. The ATO then has the ability to consolidate the unclaimed superannuation money into an active superannuation fund for you.”
  2. Include a summary of the person’s “inactive account/s”. Including;
    1. the superfund administrator;
    2. the member number, and;
    3. account balance of the superannuation fund.
  3. Provide a timeframe or expected date which the consolidation will occur. We suggested 90-days with a final notifying correspondence to be sent 30-days prior to consolidation.
  4. Include a warning that the consolidation may cancel existing insurance cover which the person may not be able to obtain elsewhere. Encourage the recipient to seek professional advice to determine if retaining the existing superannuation insurances is in the person’s best interest.
  5. Provide an option for the person to opt-out of the consolidation service. The recipient may know that they have multiple superannuation accounts and may have very good reason for it. By allowing the recipients to opt-out of the service means they can rest assured their superannuation investments and insurances policies remain active.

The above suggested initial and subsequent correspondence to be provided to all recipients rectify 1-3 of our concerns surrounding their draft correspondence.

*We note superannuation funds have started contacting at risk members to inform them of this process*

When pressing to understand how the ATO plan to choose the best superannuation fund to consolidate a person’s superannuation into, to ensure they are acting in the persons best interest, they were unsure of this process. They asked us how we would choose.

Well, its not simple.

Before making a consolidation recommendation, we would compare the following across all superannuation funds held:

  • fees payable;
  • investment options available;
  • insurances held and offered; and more.

The above comparison has to be taken into consideration in accordance to the members personal circumstance.

In order to make our recommendation to a client, we would need to prepare a Statement of Advice, detailing our findings and include our recommendations along with reasoning and consideration of advantages, disadvantages and alternatives considered.

We go through this process because we act in the best interest of our clients and we’re legally obligated to document our recommendations in a certain format.

If the ATO enact this consolidation initiative without consideration of the members personal circumstances, it is incredibly concerning.

Whether or not they take on any of our suggestions is yet to be determined.

If you are concerned about your superannuation accounts, please do not hesitate to contact us for a complimentary discussion.


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Daniel Mathers is an authorised representative (1238174) of Hunter Green Pty Ltd (AFSL 225962). Emily Matthews is an authorised representative (1261200) of Hunter Green Pty Ltd (AFSL 225962). Future Key Financial Pty Ltd ACN 608 953 840 is a Corporate Authorised Representative (1238170) of Hunter Green Pty Ltd (AFSL 225962). The information on this website contains general information and does not take into account your personal objectives, financial situation or needs. We recommend that you seek for specific financial advice if you require advice that takes into account your personal circumstances.