Jumping between jobs, too much paperwork to negotiate and a lack of time to deal with unhelpful previous fund administrators have been blamed for contributing to the creation of an inefficient superannuation system in Australia.
According to a report released by Choice, a not-for-profit organisation that conducts research and campaigns on behalf of consumers, this has resulted in too many people with unnecessary multiple superannuation accounts, who pay more than $1 billion in extra fees each year.
It says by the time someone retires, having multiple accounts could reduce their potential savings by as much as 25 per cent. This is because they incur multiple sets of fees, and some become inactive – which receive lower earnings.
The report says each Australian now has an average of three accounts – mainly because of confusing and inflexible procedures, member retention strategies that make it difficult to transfer account balances, and poor communication between funds and members.
For example, while the current portability rules give funds 90 days to complete a transfer request, the period doesn’t start until members provide the fund with all the information it requires – including complex and drawn-out proof of identification procedures.
And, while funds are required to transfer money as soon as possible, it has been known to take months, or even years, to complete a request. By comparison, an investor in a managed fund can generally redeem their units within seven days.
With many funds now moving to electronic money transfer systems, Choice says it would like to see the 90 day portability limit shortened to less than 30 days, and a stop put on account fees to remove any incentive to delay transfers.
Also among its nine report recommendations, Choice has called for the Commonwealth Government to urgently establish a superannuation accounts office within the ATO to set and meet targets for reducing account numbers, as well as policing funds that fail to assist consumers consolidate their accounts.
It is estimated that in the last financial year, 1.8 million new super accounts were set up, but only 20 per cent of the new account holders transferred all of their existing balances into them.
For further information, view the full report from the Choice website.
