The truth about super funds: Are they keeping your tax refund for insurance premiums?
Superannuation, or "super," is a big deal when it comes to planning for retirement in Australia. We trust our super funds to handle our savings ethically and efficiently, especially when it comes to those all-important tax refunds. But sadly, some super funds have been getting a bad rap for allegedly messing up these refunds.
Transparency is crucial when it comes to managing your retirement savings. How super funds handle tax refunds can seriously impact how much money you end up with. In this blog, we’re going to call out the super funds that have been under fire due to some questionable practices.
Super funds criticised for not passing on tax refunds
According to a report by the Financial Services Council (FSC), many Australians may face new tax changes that will impact their superannuation balances, and some super funds are not handling these changes transparently.
For example, the proposed tax increase for super balances over $3 million has been a hot topic. While this change is set to affect about 80,000 Australians initially, it could impact up to 500,000 people over the long term as balances grow and the cap remains unindexed.
CBUS Super
CBUS Super Fund has been caught up in some major drama lately. Allegations suggest that officials from the Construction, Forestry, Maritime, Mining and Energy Union (CFMEU) have been using their influence within CBUS to land sweet contracts for corrupt building firms. This has raised serious concerns about how CBUS is being run and brings up big questions about how they’re managing members' funds.
Adding to the concerns, according to CBUS's PDS, the fund uses tax deductions on insurance expenses to fund a reserve, which has led to transparency issues. The fund manages $85.5 billion with insurance premiums totalling $435 million, out of which a significant portion is used for the reserve. This setup is causing more people to question whether CBUS is really acting in the best interests of its members.
AustralianSuper
AustralianSuper, Australia's largest super fund, has faced legal action from the Australian Securities and Investments Commission (ASIC) for failing to merge duplicate member accounts. This failure led to members being charged multiple sets of fees and insurance premiums, affecting around 90,000 members and costing approximately $69 million.
While the specific issue of tax refunds wasn't the main focus, the fund's overall mismanagement and delay in addressing these duplicate accounts highlight a broader problem with handling member funds efficiently and transparently.
When you dive into AustralianSuper’s Product Disclosure Statement (PDS), some eyebrows have been raised regarding how they handle tax refunds. They do claim a tax deduction on insurance costs and pass those savings on to members with insurance, but there’s a bit of a question mark around how well this benefit actually gets to the members. With AustralianSuper managing around $805 billion and insurance premiums totalling about $848 million, it’s a big deal. The partial return of these tax benefits has sparked some concerns over transparency.
AMP Super
AMP Super has a knack for landing in hot water. They’ve been dealing with controversy after controversy, including missing the deadline to move almost 4,000 members to the low-cost MySuper product. Because of this delay, members ended up paying incorrect fees and missed out on default insurance protection, which also messed with how other benefits were handled.
But that’s not all—AMP has also been criticised for how they manage insurance service expenses. They charge an insurance service expense of 11.5% of the total monthly premium, capped at $360 per year. While some of these insurance fees are tax-deductible for the fund, the way they pass on benefits to members has raised eyebrows. If you make concessional contributions to your super, AMP says they’ll apply a tax credit of up to 15% to any insurance and administration fees paid by you. However, this credit is capped at the contributions tax deducted from concessional contributions made to your account.
Even though AMP is trying to fix things, it’s clear they've got some major issues with how they’re running the show.
Retail Employees Superannuation Trust (REST)
REST Super is one of Australia’s biggest super funds, with a focus on providing superannuation and insurance products. However, despite its size and reach, REST has come under fire for how it handles tax benefits. Financial advisers have raised concerns about instances where tax refunds, which should go to members, have instead been used to cover the fund’s operational costs.
Adding to the criticism, REST’s insurance premiums are substantial, totalling around $437 million. A significant chunk of this is allocated to administration. The fund receives tax deductions for these insurance premiums, and rather than passing the benefits directly to members, the tax savings are funnelled into an insurance reserve. This reserve is then used to cover the costs of insurance administration and is also supposed to benefit insured members through potential reductions in future insurance premiums. However, the lack of direct benefit to members in the short term has led to concerns about transparency and fairness in how REST manages these funds.
Funds with specific issues
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Fund name |
Issue |
PDS link |
|
AustralianSuper |
Claims a tax deduction on the cost of insurance and passes the benefit onto members that have insurance. |
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|
Unisuper |
Charges a 6% admin fee on tax refunds, impacting the overall benefit members receive. |
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|
CBUS (Construction and Building Unions Superannuation Fund) |
Uses tax deductions on insurance expenses to fund a reserve, leading to issues of transparency. |
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|
AMP Super |
Applies a tax credit of up to 15% to insurance and admin fees, but caps these credits, potentially limiting the full benefit to members. |
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REST (Retail Employees Superannuation Trust) |
Uses tax benefits to cover operational costs rather than returning them to members. The fund's insurance premiums amount to approximately $437 million, with a significant portion used for administration. |
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|
Mercer Super Trust |
Deducts tax from super accounts calculated at 15% after insurance premiums, partially returning the benefits to members but raising questions about full transparency. |
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MyNorth Wealth Personal Superannuation and Pension Fund |
Reduces tax by deducting insurance costs, which benefits members, but the overall transparency of the process is crucial for members to understand their benefits fully. |
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|
Retirement Portfolio Service (OnePath) |
Retains tax benefits for administrative purposes rather than returning them to members. |
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Equip Super |
Claims a tax deduction on insurance costs and passes some benefits to members, but transparency issues remain. |
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HUB24 Super Fund |
Claims tax deductions for insurance costs, with benefits partially passed to members. |
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Netwealth Superannuation Master Fund |
Charges various admin fees for insurance premiums, impacting overall member benefits. |
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Care Super |
Credits member accounts with a 15% contributions tax deduction benefit on the insurance fees paid. However, the wording in their PDS suggests a partial return of tax benefits. |
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NGS Super |
Retains rebates from insurance premiums for administrative purposes, impacting member benefits. |
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Active Super - Local Government Super |
deducts contributions tax at the time the contributions are made to member accounts, while earnings tax is deducted from the investment return before being credited to accounts. Although various tax credits and rebates may reduce the effective rate below 15%, the partial return of tax benefits suggests that not all benefits are fully passed on to members |
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Mine Superannuation Fund |
Retains a 6.8% admin fee from insurance premiums for managing member insurance. |
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Legalsuper |
Set to change its handling of tax rebates starting January 2024. The fund will retain the 15% tax rebate on insurance premiums, using it to cover the administration of member accounts. This change means that members will no longer receive the benefit of this tax rebate directly, impacting the overall value of their accounts. |
Insights from experts and reports
PwC's report digs into the superannuation industry's challenges, calling for more transparency and better governance. They stress the need for super funds to adopt stricter measures to ensure members' money is managed ethically and that tax benefits are fully passed on.
You can dive into the details in the PwC Report.
AIRINC highlights the impact of recent tax changes on super funds, emphasising the need for transparency in managing tax refunds. With new regulations, super funds must ensure they comply and correctly allocate tax benefits to members. For more on this, check out the AIRINC Article.
How to protect your superannuation
Stay informed: Regularly check your super fund's statements and updates. Understand how your fund manages tax refunds and other benefits.
Ask questions: Don't hesitate to ask your super fund about their practices. Transparency should be a priority for them.
Seek advice: Consult with a financial adviser to ensure that your superannuation is being managed ethically and that you are receiving all entitled benefits.
The importance of transparency and accountability
When we put our hard-earned money into super funds, we expect them to manage it ethically and efficiently. Unfortunately, repeated failures by some funds to look out for their members highlight the need for stricter regulations and tougher oversight.