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  • When is a member lost and inactive?

    The law

    Under regulation 1.03A(1)(b), the member is an inactive member if, and only if,
    (i) the individual has been a member of the fund for longer than two years, and
    (ia) the member joined the fund as a standard employer-sponsored member, and
    (ii) the fund has not received a contribution or rollover for the member within the last five years of their membership of the fund,
    unless
    ■ (d) within the last two years, the fund has verified that the member's address is correct and has no reason to believe that the address is now incorrect, or
    ■ (e) the member is permanently excluded from being a lost member because
    – the member is an inactive member who has indicated by a positive act that they wish to continue to be a member of the fund, or
    – the member has contacted the super provider at any time after they joined the fund and indicated that they wished to continue being a member of the fund, or
    – the member is a member of a SMSF.

    Best practice – ATO guidance

    The inactive tests outlined within legislation are intended to provide tangible steps for funds to take to determine if a member knows about and is engaged with their account. A step-by-step guide reflecting this decision process is provided under Lost Inactive Decision Process Flow. However, this protocol document cannot cover every scenario or circumstance of every member.

    With reference to the Guiding Principles for industry best practice provided at the start of this document, funds should take into account their member's individual circumstance when applying this best practice guidance, within the bounds of legislation.

    Example

    An individual has met the permanent exclusion test by way of a 'positive act', but has subsequently made no contributions or rollovers to their account, and has not demonstrated any indication of engagement. We would expect you to revisit your permanent exclusion of this member from being considered lost after a reasonable amount of time.

    To determine what is a reasonable amount of time, refer to your obligation to the member and the need to consider each individual's circumstances when applying these guidelines.

    End of example

    Employer-sponsored arrangement

    An employer-sponsor is an employer who contributes, or would contribute, to a fund for either:

    • the benefit of a member of the fund who is an employee or an associate of the employer
    • the benefit of dependants of the member in the event of the member's death in accordance with an arrangement between the employer and the trustee of the fund.

    A standard employer-sponsored member is a member of a regulated super fund for whom an employer-sponsor contributes, or would contribute, wholly or partly according to an arrangement between the employer-sponsor and the trustee of the fund.

    No contribution or rollover in five years

    You should determine if you have received a contribution or rollover for the member within the last five years for the relevant reporting period end dates (this date can only be either 30 June or 31 December for any given year). For example, if a member meets this five year inactivity test in January (after the 31 December reporting period end date, but before the reporting due date), they should not be reported as lost inactive for that reporting period.

    You should also not report the member as lost inactive if the account has met the five year inactivity test within the reporting period, but the member subsequently receives a contribution or rollover between that period-end date and the time you carry out your system processes to determine whether or not a member is lost.

    The reference to the non-receipt of a contribution or rollover in the past five years applies to the membership with the super provider and not to the individual account.

    Example

    John joined ABC Fund and opened an account as a standard employer-sponsored member in 1990. Over the subsequent years, he opened additional accounts with the same fund on a public offer member basis. In the last five years, the only contributions made have been to one of these additional accounts.

    Although the employer-sponsored account alone would meet the five year inactivity test, John is not considered a lost inactive member under the inactive member test. This is because he has made a contribution in the last five years in relation to his overall membership with that provider.

    End of example

    Inactive members and permanent exclusion

    Refer to Rules that apply to lost members for related legislation.

    There are two tests you should apply when considering if a member should be permanently excluded from being lost. For inactive member accounts, these tests are:

    1. The positive act test

    The positive act exclusion test can only apply in relation to members who have satisfied the inactive member test – that is, they originally joined as standard employer-sponsored members.

    To determine whether the positive act exclusion applies, the inactive member test is read in conjunction with the exclusion. Generally, if there has been any positive activity by the member in relation to their membership with you, then the member will not be considered lost.

    The example of ‘positive act’ given in the legislation is ‘deferring of a benefit’. This can also apply when a third party (for example, a financial advisor or super agent) is authorised to act on the member's behalf is involved. For example, the third party may tell the super provider of the member's wish to amend their investment strategy.

    Positive activity may include member activity such as:

    • deferring a benefit in the fund
    • electing to rollover all or part of their benefit from their original policy to another product (and it is not an automatic transfer)
    • initiating a transaction (for example, a switch)
    • changing their contact details
    • initiating a change to their account (such as nominated a beneficiary)
    • making an enquiry (such as an account balance query, performance of their account) or complaint
    • responding to a communication issued by the super provider
    • accessing the super provider's secure website to view or obtain information about their account.

    This activity indicates the member is aware of where their money is, and is engaged with their account. So you should exclude the member from being a lost member.

    The legislation does not outline for how long a positive act should be effective before you check in with your member again. For determination of what is a reasonable amount of time, refer to your obligations to the member and the need to consider each individual's circumstances when determining the level of permanency a positive act should establish for your member.

    Further guidance on the criteria you should consider has been provided in Guiding Principles for industry best practice.

    A positive act does not include a failure to act, which may arise where the super provider writes to the member asking them to respond if they do not want the provider to do something (see Westpac Banking Corporation v Commissioner of TaxationExternal Link (1996) 70 FCR 52; [1996] FCA 1834; 96 ATC 5021; 34 ATR 143).

    2. Contact by the member indicating they want to remain in the fund or RSA indefinitely.

    This second permanent exclusion test also applies to uncontactable members. Refer to Uncontactable members and permanent exclusion for detailed guidance.

      Last modified: 03 Jan 2017QC 27204