House of Representatives

Tax and Superannuation Laws Amendment (2015 Measures No. 4) Bill 2015

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)

Chapter 3 - Small lost member account threshold

Outline of chapter

3.1 Schedule 3 to this Bill amends the Superannuation (Unclaimed Money and Lost Members) Act 1999 (SUMLMA) to increase the account balance threshold below which small lost member accounts will be required to be transferred to the Commissioner of Taxation (Commissioner) from $2,000 to $4,000 from 31 December 2015, and from $4,000 to $6,000 from 31 December 2016.

3.2 All references to legislative provisions in this chapter are references to the SUMLMA unless otherwise specified.

Context of amendments

3.3 Superannuation providers are required to transfer unclaimed superannuation to the Commissioner, including small accounts (with balances below the statutory threshold) belonging to lost members. This requirement does not apply to defined benefit interests.

3.4 The transfer of small lost member accounts to the Commissioner ensures these accounts are not eroded by fees and charges imposed by superannuation providers.

3.5 Individuals are able to claim back their superannuation from the Commissioner at any time. Interest, calculated in accordance with the Consumer Price Index (CPI), has been payable on unclaimed superannuation money repaid since 1 July 2013.

3.6 Superannuation providers are currently required to notify the Commissioner of any newly identified lost member accounts, as well as any found or transferred member accounts that were previously reported as lost as at 31 December and 30 June each year. These lost member statements are due to the Commissioner by the following 30 April and 31 October respectively.

3.7 Superannuation providers are also required to report and pay the value of small lost member accounts (the current balance threshold is $2,000) to the Commissioner as unclaimed superannuation money. Reporting and payment of these unclaimed superannuation money accounts have the same due dates.

3.8 Under the Superannuation Industry (Supervision) Regulations 1994 a member may be classified as a lost member if at a particular time the member is uncontactable, is an inactive member, or was transferred as a lost member from another fund.

3.9 A member is an uncontactable member if the fund has never held an address for the member or has had mail returned unclaimed on two occasions, or one occasion if the trustee so chooses, and the fund has not received a contribution or rollover for the member within the last 12 months.

3.10 A member is an inactive member if they joined the fund more than two years ago as a standard employer-sponsored member and the fund has not received a contribution or rollover for the member within the last five years. A standard employer-sponsored member is a member of a regulated superannuation fund for whom an employer contributes, or would contribute, pursuant to an arrangement between the employer and the trustee of the fund.

3.11 A member is not a lost member if they or their superannuation provider has confirmed their current address within the previous two years of membership or if they are permanently excluded from being a lost member.

3.12 A member can be permanently excluded from being a lost member if they are an inactive member who indicates through a positive act (for example, deferring a benefit in the fund) that they wish to remain a member, or if they contact their superannuation provider and indicate that they wish to continue being a member. A member of a self-managed superannuation fund is permanently excluded from being a lost member.

3.13 The Australian Taxation Office (ATO) has strategies in place which aim to reunite members with lost and unclaimed superannuation accounts and reduce the number of unnecessary and inactive accounts in the superannuation system.

Summary of new law

3.14 The account balance threshold below which small lost member accounts will be required to be transferred to the Commissioner will increase from $2,000 to $4,000 from 31 December 2015, and from $4,000 to $6,000 from 31 December 2016.

Comparison of key features of new law and current law

New law Current law
Small lost member accounts with balances of less than $4,000 are required to be transferred to the Commissioner from 31 December 2015, then accounts with balances of less than $6,000 from 31 December 2016. Small lost member accounts with balances of less than $2,000 are required to be transferred to the Commissioner.

Detailed explanation of new law

3.15 The account balance threshold below which small lost member accounts will be required to be transferred to the Commissioner will increase from $2,000 to $4,000 from 31 December 2015, and from $4,000 to $6,000 from 31 December 2016. [Schedule 3, items 1 and 2, paragraph 24B(1)(b)]

3.16 Small lost member accounts that are below the new account balance thresholds on 31 December 2015, and 31 December 2016, will need to be reported and paid to the Commissioner by 30 April in the following year.

Example 3.1 Rochelle has a superannuation account with a balance of $2,600 on 31 December 2015. The fund has sufficient details to identify Rochelle, however two pieces of correspondence sent to Rochelle's last known address were returned unclaimed and no contributions or rollovers have been made to Rochelle's account for the last 12 months. The fund has been unable to locate Rochelle despite making reasonable efforts to do so. On this basis Rochelle's superannuation account is a lost member account that must be transferred to the Commissioner by 30 April 2016. Rochelle reclaims her superannuation from the ATO three years later. The balance of the account transferred to the Commissioner plus a CPI interest component is then paid out into Rochelle's nominated superannuation account.

Example 3.2 Janis has a superannuation account with a balance of $5,300 on 31 December 2016. The account was opened by a former employer for the purpose of paying Janis' superannuation guarantee contributions under an arrangement between the employer and trustee of the fund. In April 2011 Janis left his employer to work overseas. His member statement is mailed each year to his parent's home address in Australia. No contributions or rollovers have been made to his account since July 2011 and Janis has not contacted his fund since leaving Australia. On this basis Janis' superannuation account is a lost member account that must be transferred to the Commissioner by 30 April 2017. Janis returns from overseas two years later and reclaims his superannuation from the ATO. The balance of the account transferred to the Commissioner plus a CPI interest component is then paid out into Janis' nominated superannuation account.

Application and transitional provisions

3.17 The increase in the account balance threshold from $2,000 to $4,000, and then from $4,000 to $6,000, commences on and applies to small lost member accounts from 31 December 2015 and 31 December 2016 respectively.

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Tax and Superannuation Laws Amendment (2015 Measures No. 4) Bill 2015

3.18 Schedule 3 to this Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

3.19 This Schedule amends the Superannuation (Unclaimed Money and Lost Members) Act 1999 to increase the account balance threshold below which small lost member accounts will be required to be transferred to the Commissioner of Taxation (Commissioner). The threshold will rise from $2,000 to $4,000 from 31 December 2015 and then from $4,000 to $6,000 from 31 December 2016.

Human rights implications

3.20 This Schedule interacts with the right to social security as recognised in Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR), and the right to an adequate standard of living in Article 11 of the ICESCR.

3.21 The amendments contained in this Schedule do not affect an individual's entitlement to superannuation benefits. The transfer of lost member accounts to the Commissioner protects superannuation balances from being eroded by the fees and charges that would otherwise be imposed by superannuation funds. Individuals are able to reclaim their superannuation balances from the Commissioner at any time and are paid interest calculated in accordance with the Consumer Price Index.

3.22 The amendments do not affect an individual's eligibility or entitlement to the Age Pension. By preserving superannuation benefits in lost member accounts, the amendments help protect retirement incomes and thereby support an adequate standard of living.

Conclusion

3.23 Schedule 3 to this Bill is compatible with human rights as it does not raise any human rights issues.


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