Financial services minister Kelly O'Dwyer on the ABC's Insiders program.

You might not have noticed, but Financial Services Minister Kelly O’Dwyer’s emphatic 2018 Budget proposal to put a 3 per cent cap on administration and investment fees in pooled super looks like it will sail through both houses of Parliament in the next few days, with nary a murmur of dissent. The bill was introduced into Parliament on June 21 – just last Thursday.

The Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 contains a number of measures foreshadowed in the May Budget, and comes in the wake of a damning Productivity Commission draft report and the industry’s turmoil relating to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry hearings.

The new rules include banning trustees of super funds from charging administration and investment fees exceeding 3 per cent per year of the balance of accounts holding less than $6000. It will ban exit fees when members close or roll over their accounts, and will institute the new opt-in regime for new fund members under 25, allowing them to choose whether or not to take up group insurance. That opt-in arrangement will also apply to members with account balances below $6000 and members with inactive accounts.

Fees add up

But hold on, what circumstances would cause it to be necessary to legislate a 3 per cent cap on fees in a world where most annual fees seldom exceed 1.5 per cent? The key is the new legislation will force indirect and direct fees to fit under the cap.

Industry Superannuation Australia director of public affairs Matt Linden says it’s all about low-balance accounts.

“By definition, the fee cap only applies to accounts under $6000,” Linden says. “Small account balances exist across the industry, so it is not sector-specific.

“It will [affect] older Choice products with multiple layers of fees,” he says, noting that people are still paying trailing commissions and when including administration fees, platform fees and investment fees, the total could easily exceed 3 per cent.

“However, the changes will also [affect] newer MySuper products offered by industry and retail funds with fixed dollar-based administrative fees.”

These charges, which are about $1.50 a week or $78 a year, mean low-balance industry fund and retail MySuper accounts may breach the cap – on a $1000 balance, that fee would be 7.8 per cent a year.

Mopping up inactive accounts

Linden indicates that whether the fee cap comes into play will also depend on the account consolidation measures the Australian Taxation Office is putting into place, which provide the best opportunity yet devised to reunite inactive sub $6000 accounts with the active accounts of their rightful owners, by using tax records.

The new rules will require every account with a balance below $6000 to be transferred to the Commissioner of Taxation if it has been inactive for 13 continuous months.

As of June 30, 2017, there were more than 6.3 million lost and ATO-held accounts, with a total value of just under $18 billion, ATO data shows.