CHAPTER 3
By accessing their super, members dissipate their own retirement income.
With the introduction of member protection, the importance of cashing
benefits under $500 to avoid onerous charges no longer exists.[1]
3.1 The effect of this amendment is that individuals will no longer be
able to request payment of their superannuation account balances on the
basis that the balance is less than $500. This had been the only automatic
right to early access of superannuation benefits - for those persons who
left employment and had only small balances in their superannuation accounts.
3.2 In its Fifteenth Report, Super Guarantee Its Track Record
tabled in February 1995, this Committee examined evidence on the consequences
of allowing access to balances less than $500. The Committee recommended
the removal of access to preserved amounts of less than $500 as the second
of three elements in its proposal to alleviate the small accounts problem.
(The other two elements were changing the Super Guarantee threshold from
$450 per month to a quarterly amount of less than $1350, and the removal
of contributions tax for the first $500 of contributions.) To date there
has been no Government Response to the Committee's Fifteenth Report.
3.3 The Committee, in its Seventeenth Report Super and Broken Work
Patterns tabled in November 1995, confirmed this recommendation 'that,
subject to the small accounts problem being properly rectified, access
to preserved amounts of less than $500 should be removed'.[2]
3.4 In this inquiry into the Government's changes to early release of
superannuation, the Committee was presented with arguments both for and
against abolishing the $500 threshold. What may have initially seemed
a fairly simple issue turned out to require serious examination, as the
Committee was able to see this measure in the wider context of early access.
3.5 William M Mercer Pty Ltd submitted that this change was indeed a
retrograde step and considered 'it would have been preferable to retain
the $500 threshold'.[3]
3.6 They said that many members of superannuation funds will not, or
will not be able to, roll these small amounts over into larger benefits
they already have. The resulting proliferation of small balances in the
system, and the escalating costs of administering these accounts, are
of concern to Mercers and to the Committee. Noting the fact that many
employers find it easier to contribute for all employees rather than only
those who earn more than $450 a month, Mercers submitted:
We also expect that there will be numerous cases where amounts
rolled over will be very small, say under $50. In many of these cases
the cost of accepting and processing the rollover will exceed the monies
received ... Whilst small balances themselves are subject to member
protection provisions the related administration costs must fall somewhere
and are consequently certain to retard the growth of other members'
balances.[4]
3.7 The number of superannuation accounts in the system continues to
rise. The Committee notes the figures at the end of March 1997 of 'almost
16.4 million member accounts for the approximately 6.7 million workers
who have superannuation'. This was up 300 000 or 1.8 per cent over the
previous quarter and the increase represented 'a return to the usual pattern'.[5]
While not directly a matter for this inquiry, the continual expansion
of multiple small accounts is of concern to the Committee. Also, the introduction
of retirement savings accounts from 1 July 1997 can only be expected to
increase the number of fragmented superannuation benefits.
3.8 A different view from the above was taken by the Association of Superannuation
Funds of Australia (ASFA). They believe abolition of the threshold is
desirable in preventing leakage from the retirement incomes system:
This is particularly relevant both for SHAR which has a predominance
of accounts with less than $500 and for superannuation funds with low
average fund balances.[6]
3.9 The majority of SHAR (Superannuation Holding Accounts Reserve) account
holders are low income or casual workers. 7 ASFA believes:
It is desirable that these account holders be encouraged to save
amounts less than $500 as this is the first step for these holders to
start saving for their own retirement. By accessing these amounts, the
actual holders may dissipate their own retirement income for present
day purposes.[8]
3.10 The Committee acknowledges that the removal of the threshold is
not in the self-interest of superannuation funds, as payment of the $500
is easier to administer than to have the benefits retained in the fund
or transferred to an eligible rollover fund. As a matter of principle,
the Committee would support minimising leakage and encouraging low income
earners to preserve and build on their small superannuation savings.
3.11 With member protection on balances less than $1000 preventing such
accounts from erosion from fees and charges, 'the importance of gaining
access to benefits under $500 has diminished'.[9]
Member protection was one of the conditions of the Committee's previous
recommendation as outlined in paragraphs 3.2 - 3.3 above. The Committee
acknowledges ASFA's view that maintaining the $500 limit is 'based on
a concern for the fund members' best interests and the integrity of the
retirement income system'.[10]
3.12 Although there was no evidence on the point, the Committee considered
the possibility of maintaining a threshold only where, in individual circumstances,
it could be demonstrated that a rollover into another account was not
possible. However, the Committee decided that such an arrangement, while
sound in principle, would be too difficult to administer.
3.13 To place abolition of the $500 threshold in full context, the Committee
notes the system still allows for access of such amounts if the permanent
incapacity, financial hardship or compassionate grounds tests are satisfied.
3.14 The Committee had no direct evidence suggesting a lower threshold,
but considers this may well be the solution to the problems raised by
Mercers outlined above. A figure of (say) $200 could be substituted for
the former $500, as the threshold below which benefits may be automatically
accessed.
3.15 Such a lower threshold would accommodate the need to preserve amounts
of some significance on which superannuation savings could reasonably
be built. At the same time it would alleviate the funds of responsibility
for maintaining accounts of no consequence to the holders of those accounts.
[1] Evidence, Ms Brenda Mills, p.
78.
[2] Super and Broken Work
Patterns, p. 76.
[3] Submission 7, p. 2.
[4] ibid
[5] Insurance and Superannuation
Bulletin, ISC March 1997, p. 26.
[6] Submission 11, p.
1.
7 See Chapter 7 for further description of SHAR.
[8] Submission 11, p.
2.
[9] ibid
[10] ibid
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