How your super is protected against excessive fees

Young people and low income earners can sometimes get a rough deal out of superannuation.

Their low account balance means that they pay higher than normal fees, and because many people in this situation earn lower incomes, they sometimes pay higher tax on their superannuation than they do on their regular wages.

To address this, new laws were introduced in 2019 as part of the Protecting Your Super package of reforms. The core provisions are:

  • Administration and investment fees are capped at 3% for account balances under $6000
  • Exit fees are banned
  • Inactive low-balance accounts will be transferred to the ATO for consolidation with their active accounts where possible.
    'Inactive' accounts are those where the account balance is less than $6000 and the members has either not paid a contribution in the past 16 months or has not signed up for their fund's insurance offer.
  Fee caps
Capping fees at 3% may seem unnecessary as very few super funds charge percentage fees anywhere near that high. However, the fee cap was introduced to protect young people and low income earners who are disproportionately impacted by, say, high membership fees. For example, if a member pays $100 in member fees on a $1000 account balance, this converts to 10% - more than triple the cap.

The new law comes into play if the account balance is less than $6000, but only members with less than $3000 in their account are likely to be impacted. If you do pay more than 3% in fees, your super fund will refund this money to you at the end of each financial year.

  Reducing insurance premiums on inactive accounts
In response to concerns that there are thousands of fund members with inactive superannuation accounts who are still paying hundreds of dollars in compulsory insurance premiums, the new law requires funds to identify low-balance inactive accounts and transfer them to the Australian Taxation Office.
If you're an inactive super fund member you might have received a letter from your super fund asking if you want to continue being insured. If you didn't respond, your fund most likely switched off your insurance. If you want the insurance to re-commence you need to contact your fund immediately.

 Super Fund Performance News 2020-21How super choice works 

Further Reading