By Darin Tyson-Chan, Editor, selfmanagedsuper
You may be aware the media last month reported on a $68 million boost Australian superannuation members are enjoying when they shift from accumulation phase to retirement phase where they commence the process of drawing down their benefits via a pension.
The figure came from industry fund CBUS and drilling down to an individual level the organisation estimated a member reaching age 60, the time when they can begin to access their retirement savings, could receive an additional $4300.
On the surface I think our collective reaction on hearing that news is “wow, how good is that”. Perhaps a little deceptively it is being labelled “a little-known bonus that many Aussies are missing out on”.
But is it really a bonus or does this revelation a represent a piece of self-confession from one of largest industry funds in the country? To this end, ironically, perhaps what has really been exposed is the total lack of transparency associated with the operation of industry funds across the nation.
The process by which this “bonus” has come about needs to be explained to truly understand its nature and once you are armed with this information you will realise it represents money to which super fund members have been rightfully entitled from the time they began making contributions.
Basically this “bonus” is a refund of taxes that have been withheld by the super fund in anticipation of future tax liabilities it may incur for members throughout their time in accumulation phase. So the super fund squirrels away some of the money belonging to the member to create this provision.
Then when a member transitions into retirement phase and starts a tax-free pension, meaning the fund will no longer need the portion of the provision attributed to that particular member, it returns the money back to its rightful owner. For CBUS, as mentioned earlier, this on average translates to $4300 per individual.
My question then becomes which superannuants knows this is actually happening to their account? It’s all very well to employ these account management techniques, but is it divulged by the fund trustees? I would suggest probably not if we are now being told it is a “little-known bonus”.
So by wanting to claim credit for being the good guys and providing members entering retirement phase with additional money, CBUS seems to have called itself out as not employing the most transparent practices when engaging with its members.
But the egregious nature of this operational method goes further than simply not informing the members about it.
The money in the provision rightfully belongs to the members and not the fund. This means the amount of the “bonus” that materialises here is effectively money that member could have used in their accumulation account for the length of time they had that interest.
I’m not going to extrapolate the numbers here, but consider this in the context of all the hysteria that emerges whenever any suggestion of early access to benefits is raised. This reaction surfaced during the COVID-19 financial hardship relief measure and more recently when One Nation and the coalition flagged allowing this as a policy position.
To this end, the Super Members Council claimed One Nation’s policy to allow superannuants to access 3 per cent of the 12 per cent of their superannuation guarantee to either pay their rent or mortgage over a three-year period would cost a median full-time worker $25,000 in retirement.
However, I have heard only crickets when it comes to this future tax liability provision.
It’s not the only tax trick industry funds employ either. Under the current superannuation framework, individuals in accumulation phase have a 15 per cent tax applied to the earnings of those benefits. This tax, though, is not actually payable until the fund lodges its tax return for the relevant income year. However, it is deducted from the member’s account immediately when a contribution is made.
It does beg the question how much money are members effectively missing out on?
So whatever you do, don’t believe the spin industry funds are putting on this process of returning money to members to what has rightfully been theirs in the first place. It is a favour CBUS has provided, but that favour is all about alerting Australians to the lack of transparency involved with some industry fund processes.
Darin Tyson-Chan is the editor of selfmanagedsuper. To subscribe to the publication, please visit www.smsmagazine.com.au.
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