Finding and consolidating ‘lost’ superannuation
While there are important benefits, ASIC flags some of the risks.
Consolidation is often beneficial for consumers, but there are risks that trustees must be careful about when they encourage people to consolidate their super. Jane Eccleston, ASIC’s Superannuation Senior Executive Leader, discusses some of the issues ASIC has identified to help trustees best guide their fund members.
The proliferation of duplicate superannuation accounts and ‘lost’ superannuation is a longstanding problem that has undermined confidence in the superannuation industry. One such issue is that members may be paying unnecessary fees from separate accounts.
To counter these issues, both industry and the Government have done significant work to raise consumer awareness of the potential harms from having multiple accounts. They have also created systems and processes—such as the ‘lost super’ search line and the functionality offered through MyGov—to help consumers find and consolidate their multiple accounts and any lost superannuation.
This has resulted in $4.38 billion being consolidated into active superannuation accounts.
The primary tool that superannuation trustees have used to assist consumers consolidate their accounts is the ATO’s SuperMatch2 service. SuperMatch2 enables superannuation trustees and other entities authorised by the trustee to obtain a list from the ATO of active super fund accounts, including lost member accounts and ATO-held monies, that belong to their members or clients.
But tools for good can be misused. Unfortunately, we have seen instances of this. Some advertisements have used lost super searches as a ‘hook’ to gain new business, and for the consumers responding to these ads, their needs have often been poorly served.
Consolidation can be good for the consumer, but if not done appropriately, it can also lead to a loss of valuable insurance and payment of higher fees. And consolidation into an expensive, underperforming fund is not a good outcome.
We have also seen instances where high fees have been charged to help people consolidate their superannuation. MyGov offers a service for consumers to identify and consolidate their active super fund accounts, including lost member accounts and ATO-held monies, for free.
ASIC is concerned about the potential harm to consumers from the promotion of ‘lost super’ search and consolidation services. We wanted to alert you to the kind of behaviours we have identified as unacceptable.
Lost super and consolidation
There is over $20 billion worth of lost superannuation in Australia, as at 30 June 2019. Adding to this, the recent reforms set out in the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 led to 537,000 inactive low-balance accounts being transferred to the ATO.
We also know that most people do not switch funds: estimates of annual fund switching rates sit below 10 per cent) and around half of switching is passive – it only occurs because members change employer or their employer changes. Trustees therefore have the challenge of dealing with members who are often indifferent to superannuation.
In the course of our work, and in cooperation with the ATO, we identified entities (financial advisers, trustees and fund promoters) who were marketing ‘free’ lost super and consolidation services’ searches. These schemes are far from free. They typically erode a member’s superannuation balance by $500 to $1,000 in advice fees that are deducted directly from their account. We have also seen advisers charge a four per cent fee based on the consolidation amount. This results in consumers unnecessarily paying for a search and consolidation service, which they could get from the ATO forfree. In some cases, the whole of the lost superannuation recovered ends up paid out in fees.
We have identified, and are considering, a variety of concerning conduct including:
- trustees having little to no oversight of how third parties are using their SuperMatch2 access
- poor quality general and personal financial advice
- advisers opening a transitional ‘staging super account’ to consolidate recovered funds before monies are moved to the client’s fund of choice (which may never happen), with advice fees being deducted from the staging account
- lost super search providers setting up fake adviser profiles with a trustee in order to gain access to the trustee’s SuperMatch2 service
- providers using high pressure sales tactics or forged signatures, leading to members being unable to give informed and legitimate consent to the consolidation
- issues with fees for no service when advice providers offer an upfront consolidation service, then charge an ongoing asset-based fee with no further service – or receiving monies to which they had no entitlement in other ways. For example, by falsely advising the trustee that they had given personal advice to a member in order to receive advice fees from the trustee
- advisers inappropriately encouraging members to apply for early release of superannuation and targeting funds that appear to be more lenient in granting the release of funds, and
- providing members with a lack of balanced—or even misleading—information about the benefits and risks of consolidation, including the potential loss of any insurance cover.
COVID-19 concerns around possible misconduct
ASIC is concerned that some advisers may use the current uncertainty from COVID-19 as part of their pitch to consumers to carry out broader superannuation activities, such as the possibility of early release of superannuation, searching for lost super and consolidating their accounts. ASIC has already seen some ‘lost super search providers’ re-brand as ‘COVID-19 access providers’. This is an area we will be monitoring closely for misconduct.
What should trustees be doing?
In these circumstances, trustees should have good oversight practices over third-party use of their SuperMatch2 authorisation. They should do this to curb advisers and other parties from engaging in the concerning behaviours we’ve identified. Trustees need to act with the interests of their members in mind at all times.
The ATO is finalising its campaign following its letter to all trustees, and has removed SuperMatch2 access for one superannuation fund, with more under active consideration.
While ASIC is considering the conduct of some of the advisers and third parties involved in these matters, we are also focusing on the conduct by trustees in allowing monies to be deducted from superannuation accounts.
It is worth repeating that ASIC supports appropriate consolidation, with many consumers able to locate their lost super and save fees by carrying out the search and consolidation process. However, some financial advisers and superannuation trustees are leveraging this for their own benefit, without considering what is best for the member or the client.
Consumer messaging must be clear
Industry needs to make sure that consumers are provided with clear and balanced information about consolidation. Trustees should:
- use plain English
- focus on aspects that are relevant to member outcomes: fees, performance, insurance. The objective of superannuation is to fund retirement, so trustees should avoid marketing that obscures this message
- facilitate good decision-making by avoiding techniques that influence or mislead a member to take a certain course of action, particularly if it isn’t clear that the outcomes are in the member’s best interests, and
- give appropriate context and factual information, and ensure that links to external government websites, fact sheets and frequently asked questions are correct and up-to-date.
ASIC reminds trustees of our guidance in Regulatory Guide 234 Advertising financial products and services (including credit): Good practice guidance.
Consumers are already facing challenges when choosing a superannuation fund, so we expect trustees to be vigilant in ensuring they present their products with balance, accuracy and fairness.