ASFA estimates there are around 14 million people in Australia holding superannuation accounts; however, there is more than double this number of accounts sitting with funds. The average ratio of accounts to people in Australia is over two to one. Measures are planned to auto-consolidate these accounts and reduce the number of lost accounts. These measures, forming part of the upcoming Stronger Super initiative are expected to reduce the total number of super accounts by between five and six million.

This initiative is designed to ease the impact on the hip pockets of members (they cease to pay multiple sets of fees); however, there are significant potential risks.

What happens in the case of a member who maintains multiple accounts deliberately? For example many invested in SMSFs typically cannot get the insurance advantages attached to membership of larger, employer-sponsored funds. These individuals may deliberately leave some money in their other account when they set up an SMSF – specifically so that they keep the insurance cover.

These members will have the right to opt-out of auto-consolidation, however, if the fund doesn’t hold the member’s current address – a relatively common scenario – there will be unintended consequences.

If their insurance policy gets consolidated away without their explicit consent, who is held liable when a claim is made on the insurance?

Auto-consolidation runs the risk of creating big insurance problems in the attempt to solve administrative fee issues. While most inactive accounts should be merged in with the member’s other (active) account, a small minority definitely should not be – and it’s devilishly difficult to know which is which.

So how do we solve the issue of inactive accounts without the risks?

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Colin Russell

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