Date posted: 8/05/2018 5 min read

Just Increase the Minimum Employer Super Threshold

Low Income Super Balance Measures welcomed but easier and cheaper solution available

In brief

  • Government announces range of measures to help those with smaller account balances
  • The energy and focus on this area commendable
  • But government needs to show courage and stop these problems arising in the first place

Budget 2018 announces range of Federal budget measures to help smaller super balance holders

The government has announced a range of commendable policy measures to help those with smaller super balances.

The three main measures all applying from 1 July 2019 are:

  • Smaller super account balances – defined as $6,000 or less – will have a maximum fee of 3% of the account balance.  This will create administrative complexity for funds charging percentage, flat dollar fees and/or transaction based fees and implementation will be key
  • A ban on all exit fees – some super funds will need to restructure how they handle an allowance for such transaction processing costs
  • Insurance in super – currently members can be automatically signed up for insurance even if they don’t want it; will more to an opt-in basis for super fund members that satisfy 1 of 3 criteria – be aged under 25, have an account balance under $6,000 or not have had contributions for at least 13 months; those impacted by this change will have 14 months to decide if they will opt-in or have their insurance automatically switched off

In addition, the government will grant more powers the ATO to reunite smaller lost balances with active accounts.

As part of its budget papers the government says it will consult on ways its current policy settings in this area could be improved “to better balance the priorities of retirement savings and insurance cover within super”.

Let’s give the government praise for trying

We commend the government for trying to fix this problem which has existed for over 25 years.

Over the years many governments have taken piecemeal changes in this area hoping that each announcement “will do the trick”

.But none have dealt with the major issue.

The changes announced above, in our view, reflect a serious attempt to address some of problems that arise with small super account balances.

But let’s cut to the chase 

The real cause of this problem needs to be addressed. These small balance problems arise because the Super Guarantee threshold cuts in at too low a threshold.  It cuts in at only $450 of salary and wages each month.  For someone earning $15 per hour this represents only 30 hours of work.

This $450 threshold has existed since compulsory super was introduced in 1992.

As Chartered Accountants Australia and New Zealand has long advocated, this threshold needs to be dramatically revised upwards.

In reality many of these lower income earners will likely end up on the full age pension and pay more tax on their super investments than they pay in their own name.  Why do we penalise them in this way?

We encourage all governments to solve this problem at its source rather than try to solve it by increasing regulatory complexity.

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