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Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012



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ISSN 1328-8091

BILLS DIGEST NO. 50, 2012-13 26 November 2012

Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012

Kai Swoboda Economics Section

Contents

The Digest at a Glance ........................................................................................................................... 3

Purpose of the Bill ................................................................................................................................... 4

Structure of the Bill .................................................................................................................................. 4

Background ............................................................................................................................................. 5

Origins of unclaimed money laws .................................................................................................... 5

Mid-year economic and fiscal outlook.............................................................................................. 5

Bank accounts ..................................................................................................................................... 7

Life insurance ...................................................................................................................................... 8

First Home Saver accounts ................................................................................................................. 9

Superannuation ................................................................................................................................... 9

Unclaimed superannuation money .................................................................................................. 9

Lost members ................................................................................................................................ 10

Transfer of certain lost accounts to the Commissioner of Taxation .............................................. 11

Reuniting lost and unclaimed superannuation ............................................................................... 12

Unclaimed company property ............................................................................................................ 13

Transfers to the Commonwealth under current arrangements ......................................................... 15

Bank accounts, life insurance products and unclaimed company moneys ................................... 16

Superannuation.............................................................................................................................. 17

Committee consideration ...................................................................................................................... 17

Policy position of non-government parties/independents ..................................................................... 18

Major interest groups ............................................................................................................................ 19

Financial implications ............................................................................................................................ 20

Statement of Compatibility with Human Rights ..................................................................................... 20

Key issues and provisions..................................................................................................................... 21

2 Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012

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Bringing forward the time at which money is ‘unclaimed’ or ‘lost’ ..................................................... 21

Population mobility ......................................................................................................................... 21

Consumer behaviour ..................................................................................................................... 22

Obtaining information from ASIC and ATO databases .................................................................. 23

Interest to be calculated in accordance with the CPI ........................................................................ 23

‘Uncontactable’ members .................................................................................................................. 26

Unclaimed moneys under the Corporations Act ................................................................................ 27

Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012 3

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The Digest at a Glance

Purpose of the Bill

 The Bill amends a number of statutes to bring forward the transfer of unclaimed, inactive and lost bank accounts, life insurance policies, first home owner accounts and superannuation accounts from financial institutions to the Commonwealth.

 A special account is to be abolished so that all unclaimed moneys under the Corporations Act 2001 will be paid directly to Commonwealth consolidated revenue.

 It is proposed that interest will be paid on unclaimed, inactive and lost amounts at the rate specified in regulations from 1 July 2013. At present no interest is paid on funds paid to the Commonwealth.

Background

 Unclaimed, inactive and lost bank accounts, life insurance products, first home saver accounts, superannuation accounts and company moneys are generally transferred from financial institutions to the Commonwealth after a certain time period is reached. However, even after they are transferred, the moneys can be claimed by the owners. Many of the existing thresholds for transfer have been in place for some time.

 The Bill implements a number of announcements from the October 2012 Mid-Year Economic and Fiscal Outlook (MYEFO). Combined, the projected net savings to the budget of implementing these measures is estimated to be almost $890 million over the forward estimates, with almost $703 million to be included in 2012-13.

Stakeholder concerns

 Some financial industry groups are concerned about the ‘rushed’ announcement and implementation of the proposed arrangements, which are to commence from January 2013.

Key issues

 There is little information available about how the reduction in time period for some of the thresholds will impact account holders or how account holders might be impacted by choosing different thresholds.

 Lifting a threshold relating to ‘small’ superannuation accounts will increase the likelihood that some ‘active’ superannuation accounts of ‘uncontactable’ superannuation fund members will be paid to the Commonwealth.

 Whether an individual will be better off due to the payment of interest at the rate specified in the regulations will depend on individual circumstances, including the account balance, interest rates paid and fees charged.

4 Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012

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Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012

Date introduced: 30 October 2012

House: House of Representatives

Portfolio: Treasury

Commencement: Sections 1-3 on the day of Royal Assent; Schedules 1-5 on the day after Royal Assent

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

Purpose of the Bill

The main purpose of the Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012 (the Bill) is to change the thresholds that apply before unclaimed, inactive or lost moneys held by certain banks, life insurance companies and superannuation funds are transferred to the Commonwealth. The Bill provides for the payment of interest, equivalent to the consumer price index, on transferred balances.

In addition, the special account for unclaimed moneys paid under the Corporations Act 2001 (Corporations Act) will be abolished.

Existing provisions that relate to claiming these amounts from the relevant agency, whether they have been transferred to the Commonwealth or not, continue to apply.

Structure of the Bill

This Bill is divided into five schedules. Schedules 1-4 reduce the time period or balance threshold that applies before moneys are transferred to specified regulators for:

 bank accounts (Schedule 1)

 first home saver accounts (Schedule 2)

 life insurance products (Schedule 3) and

 superannuation (Schedule 4).

Each of these schedules also includes a regulation-making power to provide for the payment of interest on transferred balances.

Schedule 5 relates to changes in administrative arrangements for the receipt and payment of unclaimed property under the Corporations Act and the payment of interest on these funds.

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Background

Origins of unclaimed money laws

The genesis of unclaimed monies legislation lies in the common law concepts of ‘escheat’ and ‘bona vacantia’.

Escheat is a common law doctrine that operates to ensure that property is not left in limbo and ownerless. It is a remnant of feudal land law in which land reverted to the lord in defined circumstances, including where the tenant died without heirs, and where the tenant was convicted of a felony.

1

The right to bona vacantia (ownerless goods) stems from the common law right of the Crown to the goods of a person who died intestate and without relatives entitled to succeed to the personal estate. 2

It is this concept of property vesting in the Crown which is the essence of unclaimed money legislation.

There is a variety of circumstances in which a person or a company may come into possession of money which another person has a right to claim. For example, a person may hold money as a trustee or owe the money due to some contractual undertaking. The manner in which the person came into possession of the money has a bearing on their rights and obligations in relation to the money as well as those of the person who is entitled to claim the money.

3

As a result, the Commonwealth statutes which have been enacted over time provide for lost or unclaimed moneys in terms that are not uniform. Matters such as the nature of the funds which are ‘unclaimed’ moneys; and the period of inactivity and/or the amount that triggers the operation of the relevant Act vary.

Mid-year economic and fiscal outlook

A key revenue measure announced in the 2012-13 Mid-Year Economic and Fiscal Outlook (MYEFO) was to reduce time periods that apply before unclaimed, inactive or lost moneys which are held by certain banks, life insurance companies and superannuation funds are transferred to the Commonwealth (box 1). This was to be partly offset by an expense due to the payment—for the first time—of interest at the rate of the consumer price index on balances owing.

4

1. Halsbury’s Laws of Australia, Succession, para. 395-1970. 2. Ibid.

3. Law Reform Commission of Western Australia, Unclaimed money: working paper, Project no. 51, October 1976, p. 12, viewed 22 November 2012, http://www.lrc.justice.wa.gov.au/051g.html 4. Australian Government, Mid-year economic and fiscal outlook: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 178-79 and 277-78, viewed 1 November 2012, http://www.budget.gov.au/2012-

13/content/myefo/download/2012-13_MYEFO.pdf

6 Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012

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Box 1 Transfers to the Commonwealth and the Consolidated Revenue Fund

The Constitution establishes the framework for appropriations. 5 Section 81 establishes the

Consolidated Revenue Fund (CRF):

All revenues or moneys raised or received by the Executive Government of the Commonwealth shall form one Consolidated Revenue Fund.

The CRF is deemed to be ‘self-executing’, that is, all money that the Commonwealth receives, whether it belongs to the Commonwealth or not, automatically forms part of the CRF on receipt.

As such, references to payments to the ‘Commonwealth’, the ‘Treasurer’ or the ‘Commissioner of Taxation’, which are used in the statutes amended by this Bill effectively relate to funds paid into the CRF.

The revenue gain to the Government is mainly due to the accounting treatment that recognises the increase in funds transferred from financial institutions covered by unclaimed, inactive and lost account provisions to the Commonwealth as changes are made to thresholds as revenue in the year that funds are transferred.

These measures are expected to increase revenue by over $1 billion over the forward estimates, with most of the increase ($763 million) applying to the year 2012-13. This revenue is offset by $119 million allocated to the Australian Taxation Office (ATO) and Australian Securities and Investment Commission (ASIC) to support administration arrangements and for the payment of interest (table 1).

5. The text of the Commonwealth of Australia Constitution Act can be viewed at: http://www.comlaw.gov.au/Details/C2004C00469/Download

Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012 7

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Table 1: Impact of the 2012-13 Mid-Year Economic and Fiscal Outlook measures relating to unclaimed, inactive or lost moneys ($ million)

Measure 2012-13 2013-14 2014-15 2015-16 Total

Bank accounts and life insurance policies 109.4 0 0 0 109.4

Less related expense for Australian Securities and Investments Commission -16.0 -0.3 -0.3 -0.4 -17.0

Superannuation accounts

555.0 150.0 36.0 34.0 775

Less related expense for Australian Taxation Office -39.8 -43.9 -6.6 -6.1 -96.4

Company monies 98.3 12.9 8.2 4.5 123.9

Less related expense for Australian Securities and Investments Commission -4.3 -0.4 -0.4 -0.4 -5.5

Net revenue gain 702.6 118.3 36.9 31.6 889.4

Capital cost (Australian Taxation Office) -1.7 -1.7

Source: Australian Government, Mid-year economic and fiscal outlook: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 178-79 and 277-78, viewed 1 November 2012, http://www.budget.gov.au/2012-13/content/myefo/download/2012-13_MYEFO.pdf

Bank accounts

The Banking Act 1959 (Banking Act) 6 provides that unclaimed moneys held by Authorised

Deposit-taking Institutions (ADIs) 7 are to be paid annually to the Treasurer. 8

‘Unclaimed moneys’

means ‘all principal, interest, dividends, bonuses, profits and sums of money legally payable by [the bank] but in respect of which the time within which proceedings may be taken for the recovery thereof has expired’ and includes moneys in accounts that have not been active for at least seven years. 9

Regulations set a minimum account balance of $500 to which the provisions apply 10 , so that amounts

of less than this are not reported as unclaimed and continue to be retained by the institution. No interest is payable on amounts transferred.

6. The text of the Banking Act 1959 can be viewed at: http://www.comlaw.gov.au/Details/C2012C00261/Download 7. The term ADI covers major Australian and Foreign subsidiary banks, as well as Building Societies and Credit Unions. A list of ADIs as at 24 October 2012 is published by the Australian Prudential Regulation Authority

at: http://www.apra.gov.au/adi/pages/adilist.aspx 8. Section 69, Banking Act 1959. 9. Subsection 69(1), Banking Act 1959. Debiting of fees and crediting of interest is not considered to constitute

activity. Certain farm management deposit accounts are exempt from these requirements. 10. The text of the Banking (Unclaimed Moneys) Regulations can be viewed at: http://www.comlaw.gov.au/Details/F1996B00325

8 Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012

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The unclaimed money provision was included in the Banking Act when it was first enacted, with the same threshold of inactivity of seven years. 11 A seven year threshold of inactivity was also included in

the Commonwealth Bank Act 1911. 12

A person who believes that they may have unclaimed money in bank accounts can search the Australian Securities and Investments Commission (ASIC) website to identify any amounts which might relate to them. 13

Upon finding unclaimed bank account money, the person must approach the financial institution which previously held the account with evidence of their identity and other information, including the OTN (original transaction number) that relates to the successful online search of the unclaimed money database.

14 Once the institution is satisfied that the unclaimed money

relates to the person who is claiming it, ASIC is able to transfer the funds to the institution so it ultimately can be paid to the person. 15

Life insurance

Under the Life Insurance Act 1995 (Life Insurance Act) 16 ‘unclaimed moneys’ are sums of money that

have become legally payable with respect to policies where the time within which proceedings may be taken for their recovery has expired. 17 This includes sums of money payable on the maturity of a

policy which are not claimed within seven years after the maturity date of the policy and any money that the company considers should be treated as unclaimed money.

The seven year period that applies before money can be classified as ‘unclaimed’ has been part of legislation governing the operation of life insurance since at least 1945, when the Life Insurance Act 1945 was enacted. 18

Life insurance companies are required to report unclaimed moneys to ASIC on an annual basis, with payment of the relevant amounts to the Commonwealth. 19 No interest is payable on amounts

transferred.

As with unclaimed money under the Banking Act, a person who believes that they may have unclaimed money relating to life insurance products can search the ASIC website. 20 If unclaimed life

insurance money is identified, the person can approach the relevant financial institution which previously held the money with evidence of identity and other information including the OTN that

11. Subsection 69(1), Banking Act 1959. The text can be viewed at: http://www.comlaw.gov.au/Details/C2004C02409 12. Section 51, Commonwealth Bank Act 1911. 13. Australian Securities and Investments Commission (ASIC), MoneySmart website, viewed 5 November 2012,

https://www.moneysmart.gov.au/tools-and-resources/find-unclaimed-money/unclaimed-money-search 14. ASIC, MoneySmart, ‘Claim money from bank accounts’, MoneySmart website, viewed 5 November 2012, https://www.moneysmart.gov.au/tools-and-resources/find-unclaimed-money/claim-money-from-bank-

accounts 15. Ibid. 16. The text of the Life Insurance Act 1995 can be viewed at:

http://www.comlaw.gov.au/Details/C2012C00334/Download 17. Section 216, Life Insurance Act 1995. 18. Subsection 106(9), Life Insurance Act 1945. 19. Section 216, Life Insurance Act 1995. 20. Australian Securities and Investments Commission, MoneySmart website, op. cit.

Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012 9

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relates to the successful online search of the unclaimed money database. 21 The institution

subsequently requests ASIC to transfer the funds to it, so the moneys can be paid to the person who has been identified as its owner. 22

First Home Saver accounts

Provisions relating to unclaimed moneys within first home saver accounts were introduced in 2008 by the First Home Saver Accounts (Further Provisions) Amendment Act 2008. 23 These amendments

implemented a seven year threshold for unclaimed moneys, and introduced consistent arrangements for the three types of institutions (banks, life insurance providers and superannuation funds) that were able to offer first home saver accounts. 24

Superannuation

Unclaimed superannuation money

The Superannuation (Unclaimed Money and Lost Members) Act 1999 (Unclaimed Money and Lost Members Act) 25 provides that an amount of superannuation will be ‘unclaimed money’ when:

 a superannuation fund member has reached the eligibility age (currently age 65)26

 the superannuation provider has not received a contribution from the member for at least two years 27 and

 a five year period has passed since the superannuation provider has had contact with that member, despite reasonable efforts to do so. 28

When enacted in 1999, the definition of ‘unclaimed money’ in the Unclaimed Money and Lost Members Act included the requirement that no contributions had been received in a two year period but did not impose a specific time after which payment of the unclaimed moneys was to be made to the Commissioner of Taxation. Instead, there was flexibility for the trustee to determine whether this

21. ASIC, MoneySmart, ‘Claim money from life insurance policies’, MoneySmart website, viewed 5 November 2012, https://www.moneysmart.gov.au/tools-and-resources/find-unclaimed-money/claim-money-from-life-insurance-policies

22. Ibid. 23. Explanatory Memorandum, First Home Saver Accounts (Further Provisions) Amendment Bill 2008, p. 13. The bill homepage can be viewed at: http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr

3061%22 24. Section 17A, First Home Saver Accounts Act 2008 at: http://www.comlaw.gov.au/Details/C2012C00758 25. The text of the Superannuation (Unclaimed Money and Lost Members) Act 1999 can be viewed at:

http://www.comlaw.gov.au/Details/C2011C00518/Download 26. The eligibility age is set out in section 10, Superannuation (Unclaimed Money and Lost Members) Act 1999 (or in relevant regulations). 27. Alternatively, an amount is taken to be unclaimed money if in respect of a member in a defined benefit

superannuation scheme a benefit has not accrued within the last two years. 28. Subsection 12(1), Superannuation (Unclaimed Money and Lost Members) Act 1999.

10 Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012

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was the case ‘after making reasonable efforts and after a reasonable period has passed’. 29 The five

year threshold was introduced in 2007. 30

Generally, unclaimed superannuation moneys arise where:

 a member changes employment or residence (generally both) and neglects to keep their superannuation fund informed of these changes

 a couple splits their superannuation benefits as a result of a property settlement following the breakdown of their relationship and one party changes address or employment and also does not inform their superannuation fund of these changes

 a temporary resident leaves Australia and does not claim their benefits within six months of departure and the superannuation fund pays their benefits to the Commissioner of Taxation or

 a superannuation fund receives a contribution that does not have enough information accompanying it to adequately identify the member (for example, a name may be misspelt, or date of birth, address or a tax file number do not accompany the contribution).

Lost members

Provisions relating to the reporting of ‘lost’ members to a government agency by superannuation funds were first introduced in 1996, when the then, Insurance and Superannuation Commission was given the responsibility of administering a register of lost members. Administrative responsibility was then delegated to the Commissioner of Taxation.

31

The Unclaimed Money and Lost Members Act formalised the administrative responsibility for the lost members register with the Commissioner of Taxation and provides for moneys to be transferred from superannuation funds (excluding self-managed superannuation funds) when a member is ‘lost’ and the account balance is less than $200 and where an account of an unidentifiable member has been inactive for the last five years.

32 Under these provisions no interest or returns are credited to an account once funds are transferred.

A superannuation fund member is deemed as ‘lost’ when, amongst other things, they are uncontactable by the fund or the member is an inactive member—that is, the person has been a member of the fund for more than two years but no contribution or rollover has been received in respect of the person within the last five years.

33

29. Superannuation (Unclaimed Money and Lost Members) Act 1999, as enacted, can be viewed at: http://www.comlaw.gov.au/Details/C2004C07173 30. Schedule 7, Tax Laws Amendment (Simplified Superannuation) Act 2007, viewed 23 November 2012, http://www.comlaw.gov.au/Details/C2007A00009/Download 31. Australian National Audit Office (ANAO), Administration of the Superannuation Lost Members Register:

Australian Taxation Office, ANAO Audit report no. 17, 2005-06, 29 November 2005, p. 28, viewed 23 November 2012, http://www.anao.gov.au/Publications/Audit-Reports/2005-2006/Administration-of-the-Superannuation-Lost-Members-Register 32. Part 4A, Superannuation (Unclaimed Money and Lost Members) Act 1999. These provisions also apply to Retirement Savings Account holders. 33. Subregulation 1.03A(1), Superannuation Industry (Supervision) Regulations 1994. The text of the Superannuation Industry (Supervision) Regulations 1994 can be viewed at: http://www.comlaw.gov.au/Details/F2012C00564/Download

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The trustee of a fund may decide that a member (or class of members) can be permanently excluded from being lost. 34

Transfer of certain lost accounts to the Commissioner of Taxation

Certain lost accounts are required to be transferred biannually from superannuation funds to the Commissioner of Taxation:

 ‘small’ accounts of lost members—defined to be those accounts with balances of less than $200 and

 inactive accounts of unidentifiable lost members—where no amounts have been received within the last five years and the fund is satisfied that it will never be possible for the provider, having regard to the information reasonably available to the provider, to pay an amount to the member. 35

The provisions requiring the transfer of these funds to the Commissioner of Taxation first applied from 1 July 2010, after being announced in the 2009-10 Budget. 36 Prior to this, these funds remained with

the relevant superannuation fund or were transferred to eligible rollover funds. At that time, the transfer to the Commissioner of Taxation of these funds was expected to increase net revenue by almost $230 million over the period 2010-11 to 2012-13. 37

The Coalition supported the transfer of these funds to the Commissioner of Taxation, noting that this was ‘basically a housekeeping measure which requires superannuation funds to transfer lost member’s superannuation to the Australian Taxation Office’. 38

The justification for the transfer of such funds—which was already in place for unclaimed moneys—was that it would improve the efficiency of the superannuation system overall by removing the need for superannuation funds to administer or apply member protection to small accounts that are transferred and improve the equity for other members of the fund that were cross-subsidising the member protection arrangements.

39

The choice of a $200 threshold appears to be related to the threshold that applied—and currently still applies—to the maximum account balance that can be withdrawn under the preservation rules. 40 The

Explanatory Memorandum to the Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009 notes that:

34. Subregulations 1.03A(2) and (3), Superannuation Industry (Supervision) Regulations 1994. 35. Section 24B, Superannuation (Unclaimed Money and Lost Members) Act 1999. 36. Schedule 3, Tax Laws Amendment (2009 Budget Measures No. 2) Act 2009. The text of the Tax Laws Amendment (2009 Budget Measures No. 2) Act 2009 can be viewed at:

http://www.comlaw.gov.au/Details/C2009A00133/Download 37. Explanatory Memorandum, Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009, p. 9, viewed 5 November 2012,

http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fems%2Fr422 4_ems_cc08e106-34ba-4f33-b81c-bdb8b3aa266e%22 38. H Coonan, ‘Second reading speech: Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009’, Senate, Debates, 30 November 2009, p. 9612, viewed 5 November 2012,

http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansards%2F2 009-11-30%2F0600%22 39. Explanatory Memorandum, Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009, op. cit., p. 114. 40. Part 1, Superannuation Industry (Supervision) Regulations 1994.

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Accounts of less than $200 for lost members who are subsequently found can be cashed tax free from the superannuation system. However, claiming these accounts can be a cumbersome and time consuming process. Many superannuation fund members therefore do not make the effort to claim these accounts.

41

Reuniting lost and unclaimed superannuation

If a person believes that they may have lost or unclaimed superannuation, the person can use the web-based ‘SuperSeeker’ search tool. This requires a person to enter their tax file number (TFN), name and date of birth. If these details are verified, a list of possible lost superannuation records will be displayed or advice will be provided that no records were found.

42 Superannuation funds may also

attempt to locate lost accounts through the ‘SuperMatch’ facility provided by the ATO. 43

The Government has recently also introduced a range of changes proposed by the Cooper Review of superannuation 44 that aim to assist superannuation funds and the ATO to locate and consolidate

multiple accounts through the greater use of TFNs to locate accounts and changes in administrative processes:

 from 27 June 2012, the ATO has been permitted to disclose all types of member information in relation to individuals to superannuation entities and their administrators to enable funds to assist their members to find and consolidate their superannuation interests 45

 from 1 July 2011, superannuation funds have been able to use TFNs for the purpose of locating multiple accounts held by the same person in order to consolidate the accounts, whether in the same superannuation fund, RSA, or across multiple superannuation funds 46

and

 the ATO is currently developing an electronic form for individuals to apply electronically to consolidate superannuation accounts following legislative changes made in March 2012. 47 Such transfers presently require paper forms.

48

41. Explanatory Memorandum, Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009, op. cit., p. 114. 42. Australian Taxation Office (ATO), ‘SuperSeeker helps you manage your future’, ATO website, viewed 7 November 2012, http://www.ato.gov.au/individuals/content.aspx?doc=/content/33301.htm&pc=001/002/064/007/004&mnu=0&

mfp=&st=&cy= 43. Australian Taxation Office (ATO), ‘About SuperMatch’, ATO website, viewed 22 November 2012, http://www.ato.gov.au/content/24550.htm 44. The Cooper Review, also referred to as the ‘Super System Review’ was conducted over the period

2008-2010 and the recommendations of the review underpin many of the Government’s recent and proposed changes to superannuation. Further information about the review is available in K Swoboda, Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011, Bills Digest, no. 119, 2011-12, Parliamentary Library, Canberra, 2012, pp. 5-9, viewed 7 November 2012, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillsdgs%2F1 481971%22 45. Schedule 5, Tax and Superannuation Laws Amendment (2012 Measures No.1) Act 2012, viewed

26 November 2012, http://www.comlaw.gov.au/Details/C2012A00075 46. Schedule 3, Tax Laws Amendment (2011 Measures No. 2) Act 2011, viewed 26 November 2012, http://www.comlaw.gov.au/Details/C2011A00041 47. Schedule 1, Tax Laws Amendment (2011 Measures No. 9) Act 2012, viewed 26 November 2012,

http://www.comlaw.gov.au/Details/C2012A00012 48. Australian Taxation Office (ATO), ‘New online form to find lost super’, ATO website, viewed 7 November 2012, http://www.ato.gov.au/taxprofessionals/content.aspx?doc=/content/00303473.htm. The ATO notes

that the regulations to support this measure are not yet finalised.

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Further measures are also planned, with the automatic consolidation of superannuation accounts on the lost members register and accounts that have not received a contribution or rollover in the previous two years and where the account balance is less than $1000 (possibly later increased to $10 000).

49

Unclaimed company property

Unclaimed company property can arise in a number of ways under the Corporations Act, for example:

 moneys arising after a compulsory acquisition of securities, where the person cannot be found for 12 months 50

 where a company cannot contact a shareholder for more than six years51 or

 where there is money that is the property of a deregistered company52, or unclaimed money after the liquidation of a company. 53

Under current arrangements, ASIC is responsible for holding and handling unclaimed property arising under the Corporations Act. 54 In the case of property that is not money, ASIC must sell or dispose of

the property as it sees fit. 55

The money and proceeds from the disposal are held in a special account established under the Australian Securities and Investments Commission Act 2001 (ASIC Act) 56 —the Companies and

Unclaimed Moneys Special Account (CUMSA). 57 Special accounts sit within the Consolidated

Revenue Fund (box 2).

49. Australian Government, Stronger super: information pack, 21 September 2011, pp. 12-13, viewed 7 November 2012, http://strongersuper.treasury.gov.au/content/publications/information_pack/downloads/information_pack.pdf

50. Section 668A, Corporations Act 2001, viewed 26 November 2012, http://www.comlaw.gov.au/Details/C2012C00696 51. Sections 1343 and 1343A, Corporations Act 2001. 52. Subsections 601AD(1A) and (2), Corporations Act 2001. 53. Section 544, Corporations Act 2001. 54. Part 9.7, Corporations Act 2001. 55. Paragraph 1339(2)(b), Corporations Act 2001. 56. The text of the Australian Securities and Investments Commission Act 2001 can be viewed at:

http://www.comlaw.gov.au/Details/C2012C00694/Download 57. Section 133, Australian Securities and Investments Commission Act 2001.

14 Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012

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Box 2 Special accounts and the consolidated fund

A special account is essentially a mechanism used to manage money that is designated for a particular purpose. A special account is an appropriation mechanism that notionally sets aside an amount within the Consolidated Revenue Fund to be expended for that purpose. The appropriation authority is sections 20 and 21 of the Financial Management and Accountability Act 1997.

58 The type

of appropriation provided by a special account is a special appropriation. The appropriation amount is limited to the balance of the special account and this remains available until the special account is abolished.

As at 1 March 2012, there were 171 special accounts managed across government agencies. 59 The

reasons for setting up special accounts were summarised by the Department of Finance 60 :

[Special Accounts] provide a useful method of delivering some government programs, particularly ones funded by, say, indirect taxes or other compulsory imposts, contributions by other governments or discretionary contributions by members of the community. Special Accounts allow money in the CRF to be set aside for particular spending purposes, and moneys in a Special Account can only be spent for the purposes nominated.

… Special Accounts may be used for proper trustee type moneys, where the Commonwealth is holding money on behalf of other parties, so genuine trustees’ moneys can fit into the Special Account definition… Also, where we are holding moneys on behalf of the States and for other similar uses, Special Accounts are an appropriate vehicle as well.

Unclaimed funds are held in CUMSA for six years, after which time any remaining moneys are transferred to the CRF. 61 Funds held in CUMSA are invested and these funds can be used to fund

administration and other approved projects. However, funds held for potential claimants do not attract interest. Successful claims against funds in the CUMSA are paid out of the account if it is within the six year period or via an appropriation if this period has elapsed. 62

In 2011-12, ASIC paid out around $19 million to over 5000 successful claimants on unclaimed moneys under the Corporations Act. This was down from around 4700 successful claimants totalling $25 million in 2010-11. 63

As at 30 June 2012, ASIC reported a contingent liability of almost $20 million, representing the expected amount to be repaid to claimants from funds that have been transferred to consolidated revenue. 64

58. The text of the Financial Management and Accountability Act 1997 can be viewed at: http://www.comlaw.gov.au/Details/C2012C00510/Download 59. Department of Finance and Deregulation (DoFD), ‘Chart of special accounts—1 March 2012’, DoFD website, viewed 20 November 2012, http://www.finance.gov.au/financial-framework/financial-management-policy-

guidance/docs/Chart-of-Special-Accounts.pdf 60. I McPhee, Department of Finance, in Joint Committee of Public Accounts and Audit, Inquiry into the Draft Financial Framework Legislation Amendment Bill, House of Representatives, Canberra, 20 August 2003,

p. 29, viewed 20 November 2012, http://www.aph.gov.au/Parliamentary_Business/Committees/House_of_Representatives_Committees?url=jc paa/financial_bill/contents.htm 61. Subsection 1341(1), Corporations Act 2001. 62. Subsection 1341(2), Corporations Act 2001. 63. Australian Securities and Investments Commission (ASIC), Annual report 2011-12, pp. 100 and 113, viewed 22 November 2012, http://www.asic.gov.au/asic/asic.nsf/byheadline/Annual+reports?openDocument 64. Ibid., p. 100.

Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012 15

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Significant funds flow through the CUMSA each year. In 2011-12, of the $19.3 million paid from the fund, $1.3 million was received through an appropriation relating to funds transferred after the six year period (table 2). Under the six-year threshold for transfer to the consolidated fund, around $13 million was transferred from CUMSA in 2011-12 and $8 million in 2010-11. CUMSA also supports the administration of the program by ASIC as well as other initiatives such as the Australian Financial Centre Taskforce Secretariat and grants to the Grant to Australasian Compliance Institute.

65 These

and other ‘special purpose disbursements’ are equivalent in magnitude to payments made to claimants from the fund.

Table 2: Companies and Unclaimed Moneys Special Account cash flows, 2011-12 and 2010-11 ($’000)

2010-11 2011-12

Balance carried forward from previous year

7215 25 458

Appropriation for the reporting period

1160 1259

Receipts during the year 28 072 37 841

Interest amounts credited 554 1317

Investments realised 344 184 262 969

Available for payments 381 185 328 844

Cash transferred to Consolidated Revenue

(8019) (12 899)

Investments made from the Special Account

(296 184) (263 566)

Disbursements (25 127) (19 329)

Administration costs (1229) (4318)

Special purpose disbursement (25 168) (21 636)

Balance carried to next period (excluding investment balances) and represented by:

25 458 7096

Cash - held by ASIC 25 458 7096

Source: Australian Securities and Investments Commission (ASIC), Annual report 2011-12, ASIC, p. 123, viewed 8 November 2012, http://www.asic.gov.au/asic/asic.nsf/byheadline/Annual+reports?openDocument

Transfers to the Commonwealth under current arrangements

Under existing arrangements, a significant amount of money is recorded as lost, or unclaimed, by the Australian Taxation Office and ASIC. Of these amounts however, only a portion will ultimately be paid

65. Australian Government, Mid-year economic and fiscal outlook: 2011-12, Commonwealth of Australia, Canberra, 2011, pp. 286 and 291, viewed 15 November 2012, http://www.budget.gov.au/2011-12/content/myefo/download/2011-12_MYEFO.pdf

16 Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012

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to claimants. The expected value of claims to be paid by ASIC is recognised as a contingent liability in the agency’s financial statements. As at 30 June 2012, ASIC recognised a contingent liability of around $39 million in relation to unclaimed bank accounts, almost $6 million in relation to life insurance products and $20 million for unclaimed company moneys.

66 The value of superannuation

amounts held by the Commonwealth and expected to be repaid is not disclosed.

Bank accounts, life insurance products and unclaimed company moneys

Over the past few years, cash transferred to the Official Public Account (OPA) 67 from banks and life

insurance institutions and for companies has averaged around $60 million per year, with claims paid averaging around $34 million per year (table 3). Cash paid to and from the OPA in relation to unclaimed company moneys only represents a small proportion of cash received and paid due to the operation of the CUMSA.

Table 3: Unclaimed moneys transferred to and from the Official Public Account, 2008-09 to 2011-12 ($’000)

2008-09 2009-10 2010-11 2011-12

Into Official Public Account

Banking 45 216 53 740 57 291 61 227

Life insurance 6972 4629 5505 8769

Company moneys 9053 9974 8019 12899

61 241 68 343 70 815 82 895

Out of Official Public Account

Banking 26 122 28 024 34 001 32 769

Life insurance 4793 3716 3114 4602

Company moneys 767 881 1160 1259

31 682 32 621 38 275 38 630

Net gain for Official Public Account

Banking 19 094 25 716 23 290 28 458

Life insurance 2179 913 2391 4167

Company moneys 8286 9093 6859 11 640

29 559 35 722 32 540 44 265

Source: Australian Securities and Investments Commission (ASIC), Annual report 2011-12, pp. 110, 120 and 123; Annual report 2009-10, pp. 96, 135,139 and 142.

66. Australian Securities and Investments Commission (ASIC), Annual report 2011-12, op. cit., pp. 100 and 113. 67. The Official Public Account is essentially a bank account holding cash at the Reserve Bank of Australia, the aggregate balance of which represents the Government’s daily cash position.

Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012 17

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Superannuation

For superannuation accounts, the value of outstanding lost and unclaimed funds was around $18 billion at 30 June 2012 (table 4).

Table 4: Lost members register and unclaimed superannuation monies, 2008-09 to 2011-12

2008-09 2009-10 2010-11 2011-12

Value ($ million)

Lost uncontactable accounts 9800 12 200 12 100 9000

Lost inactive accounts 3800 6600 8100 7800

Unclaimed accounts 205 393 730 887

13 805 19 193 20 930 17 687

Accounts (‘000)

Lost uncontactable accounts 3800 4500 3500 2000

Lost inactive accounts 1000 1300 1500 1400

Unclaimed accounts 353 413 2300 2800

5153 4913 7300 6200

Source: Australian Taxation Office (ATO), Annual report 2011-12, p. 87, viewed 24 November 2012, http://annualreport.ato.gov.au/uploadedFiles/Content/Downloads/n0995-10-2012_js23899_w.pdf

The ATO annual report does not separately disclose amounts transferred to consolidated revenue each year. Rather, these amounts are included with other amounts. 68

Committee consideration

The Bill was referred to the Senate Economics Legislation Committee (Economics Committee) for inquiry and report by 19 November 2012. 69

The Economics Committee’s report was tabled on 19 November 2012. The majority recommendation of the Economics Committee was that the Bill be passed. 70 The majority noted that the proposed

68. Australian Taxation Office (ATO), Annual report 2011-12, ATO website, p. 274, viewed 22 November 2012, http://www.ato.gov.au/corporate/content.aspx?doc=/content/53636.htm&mnu=49806&mfp=001 69. Details of the inquiry can be viewed at: http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=economics_ctte/treas

ury_unclaimed_money_2012/info.htm 70. Senate Economics Legislation Committee, Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012 [Provisions], the Senate, Canberra, 19 November 2012, p. 18, viewed 20 November

2012, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=economics_ctte/treas ury_unclaimed_money_2012/report/index.htm

18 Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012

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changes ‘will be of significant benefit to consumers … [and] will help reunite people with their unclaimed money sooner, and will protect the real value of that money while it remains unclaimed’. 71

A dissenting report by Coalition Senators criticised the ‘undue haste and lack of proper process’ with which the proposals were being considered. 72 Coalition Senators considered that the Government

should withdraw the legislation and undertake further consultation. Failing that, the implementation dates of Schedules 1, 2 and 4 should be delayed. 73

Policy position of non-government parties/independents

The Coalition has indicated that it will oppose the Bill, although this opposition is largely based on the short timeframe given for debate on the Bill rather than the merits of the proposed changes. 74

The Australian Greens support the revenue measures included in MYEFO and indicated that they would support the Bill. However, Mr Bandt also noted that there should be further scrutiny of the measures, 75

especially those relating to bank accounts and life insurance. 76

Mr Oakeshott echoed the Coalition’s concerns with the short timeframe available for debate on the Bill, and indicated that he, too, would not support the Bill unless debate was deferred so that the proposed changes could be examined in greater detail. 77

Mr Oakeshott and several other

independents including Mr Windsor, Mr Wilkie, Mr Katter and Mr Thomson have been reported as being unlikely to support the Bill. 78

71. Ibid., p. 17. 72. Ibid., p. 19. 73. Ibid., p. 21. 74. J Hockey, ‘Second reading speech: Treasury Legislation Amendment (Unclaimed Money and Other

Measures) Bill 2012’, House of Representatives, Debates, 31 October 2012, p. 12 742, viewed 6 November 2012, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2F4 66695ee-0c7f-4e03-8a6d-246f5f265306%2F0030%22 75. A Bandt, ‘Second reading speech: Treasury Legislation Amendment (Unclaimed Money and Other

Measures) Bill 2012’, House of Representatives, Debates, 31 October 2012, p. 12 748, viewed 6 November 2012, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2F4 66695ee-0c7f-4e03-8a6d-246f5f265306%2F0033%22 76. A Bandt, Greens will move for inquiry on lost accounts Bill, media release, 31 October 2012, viewed

6 November 2012, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressrel%2F2014 365%22 77. R Oakeshott, ‘Second reading speech: Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012’, House of Representatives, Debates, 31 October 2012, p. 12 748, viewed 6 November 2012, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2F4 66695ee-0c7f-4e03-8a6d-246f5f265306%2F0032%22 78. S Maher, op. cit.; F Anderson and G Daley, ‘Swan budget fiddle comes under threat’, The Australian Financial Review, 1 November 2012, p. 1, viewed 6 November 2012, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressclp%2F2014 910%22

Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012 19

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Major interest groups

The consumer group Choice supports the Bill, which it considers ‘contains several important benefits for consumers’. However, Choice was of the view that more could be done to reunite consumers with lost accounts. 79

The Institute of Chartered Accountants also supports the measures included in the Bill. 80

Several industry groups have criticised the Government for the short time period in which the proposals were announced and the implementation of the measures from 1 January 2013. 81

For example, the Association of Building Societies and Credit Unions stated that:

It would have been preferable if the Government could have consulted with industry on this proposal at an earlier stage. Announcing a change of this magnitude on 22 October, to take effect from 31 December, is a very short timeframe for implementation. Furthermore, giving stakeholders less than two weeks to review the legislation does not provide sufficient time for careful consideration of the full implications of the proposed change. We would prefer commencement of this policy to be delayed until 1 January 2014, allowing time for a comprehensive consultation process to take place before implementation.

82

Similarly, the Australian Bankers’ Association stated:

The ABA notes that the proposed timing for implementation and a commencement of 31 December 2012 is unrealistic, being in less than 2 months and falling during a period when banks implement freezes on any technology or IT systems changes. It is estimated that banks and other ADIs will require at least 6 months to make all the necessary changes, inform customers in a legally compliant manner, and meet compliance requirements. It should be noted that individual banks and other ADIs will have different implementation issues. Therefore, the ABA believes that a 12 month transitional period for compliance is appropriate to ensure the legal, technical and practical issues can be addressed and ensure that the new regime can be streamlined into the existing annual process without disrupting banks’ systems or bank-customer relationships.

83

79. Choice, Submission to the Senate Economics Committee, Inquiry into the Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012, 9 November 2012, p. 1, viewed 19 November 2012, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=economics_ctte/treas ury_unclaimed_money_2012/submissions.htm

80. Institute of Chartered Accountants Australia, Submission to the Senate Economics Committee, Inquiry into the Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012, 9 November 2012, pp. 1-2, viewed 19 November 2012, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=economics_ctte/treas ury_unclaimed_money_2012/submissions.htm

81. The government announced in the MYEFO statement that the reforms would take effect from 31 December 2012. Source: Australian Government, Mid-year economic and fiscal outlook: 2012-13, op. cit., pp. 178 (superannuation) and 277 (bank accounts and life insurance).

82. Association of Building Societies and Credit Unions, Submission to the Senate Economics Committee, Inquiry into the Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012, 9 November 2012, p. 4, viewed 20 November 2012, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=economics_ctte/treas ury_unclaimed_money_2012/submissions.htm

83. Australian Bankers’ Association Inc., Submission to the Senate Economics Committee, Inquiry into the Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012, 9 November 2012, p. 5, viewed 20 November 2012,

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Implementation issues that have been cited by industry groups include:

 limited time available to proactively contact account holders about the transfer of unclaimed moneys 84

 duplication in notifying account holders as current processes are currently underway85 and

 bank freeze of IT changes.86

Some superannuation industry groups argue that with the implementation of a number of measures planned over the next few years to consolidate inactive accounts, the transfer could be delayed or aligned with other processes to reduce the ‘churn’ of superannuation accounts. 87

This is discussed

further in the ‘Main issues’ section of this Bills Digest.

Financial implications

As noted in the ‘Background’ section to this Bills Digest, the measures included in the Bill are estimated to provide net savings to the Budget. The Explanatory Memorandum notes that these savings are expected to be $886 million over the forward estimates period. 88

The revenue gain to the Government is due to the accounting treatment that recognises the increase in funds transferred from financial institutions covered by unclaimed, inactive and lost account provisions to the Commonwealth as revenue in the year that funds are transferred. For Schedule 5 of the Bill, the revenue gain is due to abolishing a special account that previously limited the Government’s ability to use some funds held under the Corporations Act. As the measures are expected to commence from 31 December 2012, most of this revenue will be attributed to the 2012-13 financial year.

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011, the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the

http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=economics_ctte/treas ury_unclaimed_money_2012/submissions.htm 84. Association of Building Societies and Credit Unions, op. cit., p. 5. 85. Australian Bankers’ Association Inc., op. cit., p. 4. 86. S Münchenberg (Australian Bankers’ Association Inc.), Senate Economics Committee, Inquiry into the Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012, public hearing transcript, 12 November 2012, p. 7, viewed 19 November 2012, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22committees%2Fcommsen%2 Ffc582724-5e56-4bd1-8d78-f62348ef1ec1%2F0000%22 87. Mercer, Submission to the Senate Economics Committee, Inquiry into the Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012, 9 November 2012, p. 5, viewed 20 November 2012, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=economics_ctte/treas ury_unclaimed_money_2012/submissions.htm; Association of Superannuation Funds of Australia, Submission to the Senate Economics Committee, Inquiry into the Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012, 8 November 2012, pp. 8-9, viewed 20 November 2012, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=economics_ctte/treas ury_unclaimed_money_2012/submissions.htm 88. Explanatory Memorandum, Treasury Legislation Amendment (Unclaimed Money and Other Measures Bill 2012), p. 3.

Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012 21

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international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible. 89

At the time of writing this Bills Digest the Parliamentary Joint Committee on Human Rights had not reported on the Bill.

Key issues and provisions

Bringing forward the time at which money is ‘unclaimed’ or ‘lost’

The Bill proposes to change the period during which an account can be inactive before funds are transferred to the Commonwealth from seven to three years (with the possibility that this can be increased above three years by Regulation) for bank accounts 90

, home saver accounts 91 and life

insurance. 92 In the case of the superannuation accounts of unidentifiable members the period of

inactivity before funds are transferred is proposed to be reduced from five years to 12 months. 93

As a transitional measure, the Bill provides for an extension from 31 March 2013 to 30 April 2013 on the deadline for ADIs and life insurance providers to report on, and transfer to the Commonwealth, unclaimed bank account and life insurance moneys as at 31 December 2012. 94

The current seven year period that applies to bank accounts and life insurance has been unchanged for a significant time, with banking legislation and life insurance legislation including such a period since at least the 1940s. The key argument advanced by Treasury for a reduction in the period before unclaimed or lost amounts are transferred to consolidated revenue is that current claims data shows that it becomes increasingly likely that accounts are unclaimed the longer the period of inactivity and that the earlier accounts are listed on searchable databases, the sooner that a claimant can find them.

95

The current five year period for the transfer of inactive superannuation accounts of unidentified members was introduced in 2009. There was no discussion during the parliamentary debate as to why a five year period was chosen, although it is consistent with the five year period that applied to the transfer of unclaimed superannuation accounts at the time.

Population mobility

Increases in the number of persons moving address may increase the risk that financial institutions lose track of account holders. At a high level, population mobility over time can be examined using census results, which from the 1970s have included questions about whether a person had moved

89. The Statement of Compatibility with Human Rights can be found at page 25 of the Explanatory Memorandum to the Bill. 90. Items 1-3, Schedule 1 of the Bill. 91. Items 1-3, Schedule 2 of the Bill. 92. Item 3, Schedule 3 of the Bill. 93. Item 6, Schedule 4 of the Bill. 94. Item 8, Schedule 1 of the Bill. 95. Treasury, Submission to the Senate Economics Committee, Inquiry into the Treasury Legislation

Amendment (Unclaimed Money and Other Measures) Bill 2012, 9 November 2012, pp. 3 and 6, viewed 19 November 2012, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=economics_ctte/treas ury_unclaimed_money_2012/submissions.htm

22 Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012

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house compared to the previous census (that is, five years earlier). While such a question understates mobility as it does not include multiple moves within a five year period, it nevertheless provides an indication of how mobile the population is over a long period of time. While the number of persons living at a different address in the year of a Census compared to the Census before has increased each Census year in line with changes in population, the rate of movement has changed from Census to Census (figure 1).

Figure 1: Population mobility, usual residence five years ago, 1971-2011

Source: Australian Bureau of Statistics, Census, various years.

Consumer behaviour

Several submissions from financial institutions to the Economics Committee inquiry into the Bill considered that reducing the period of inactivity threshold to three years for bank accounts would disadvantage consumers because, while the account may be inactive, it is held as part of a broader portfolio of accounts that bring a range of benefits to the account holder—for example, offset accounts and linked accounts.

96 Another provider considered that an ‘account holder’ view should be taken about inactive accounts, as people sometimes had active accounts with an institution and purposely kept some accounts inactive.

97

96. Australian Bankers’ Association, op. cit., p. 3. 97. ING Direct, Submission to the Senate Economics Committee, Inquiry into the Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012, 12 November 2012, p. 2, viewed 19 November 2012,

http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=economics_ctte/treas ury_unclaimed_money_2012/submissions.htm

0%

10%

20%

30%

40%

50%

60%

70%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

1971 1976 1981 1986 1991 1996 2001 2006 2011

Proporion of persons residing at same address as 5 years ago (per cent)

Number of persons living at a different address tham 5 years ago ('000)

No. living at different address ('000) (left hand side) Proportion not moving (right hand side)

Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012 23

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In these circumstances, any threshold is likely to disadvantage consumers, although it could be argued that the shorter the threshold the more consumers would be inadvertently affected.

Obtaining information from ASIC and ATO databases

Members of the public have been able to search ASIC’s database via its website since 2002 and the ATO’s database via its website since 2003. 98

Prior to this, consumers could contact the relevant financial institution directly or, for banking and life insurance unclaimed moneys, the information was published regularly by ASIC 99 , with ASIC also able

to be contacted directly by phone or email. For lost and unclaimed superannuation, the ATO has been responsible for administering the register of lost superannuation since 1996, with its activities including searches on request by members, data matching for superannuation funds and targeted letters to members who are on the register.

100

Given the relative ease with which members of the community can now access information about unclaimed and lost moneys, it seems reasonable that the current thresholds for which unclaimed moneys and inactive superannuation accounts of unidentified members can be transferred to the Commonwealth can be reduced. However, the Government has not provided any information about the impact of using different thresholds than those that are proposed in the Bill.

Interest to be calculated in accordance with the CPI

At present, amounts transferred to the Commonwealth do not accrue any interest.

Under the provisions of this Bill, interest will be paid annually at a rate to be determined by Regulations. 101 If amounts are not transferred, bank account balances and superannuation account

balances continue to earn interest but also are impacted by various fees. In the case of unclaimed life insurance, no interest is paid. 102

The Explanatory Memorandum notes that interest will be calculated in accordance with the consumer price index (CPI) and that a nil rate will be able to be prescribed where the CPI does not change between given periods. 103

Although not mentioned in the Explanatory Memorandum, the Government intends to introduce legislation in early 2013 to exempt the interest earned from tax. 104

Bank accounts

98. Australian Securities and Investments Commission (ASIC), Annual report 2002-03, ASIC, p. 55, viewed 19 November 2012, http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/annual_report2002-03.pdf/$file/annual_report2002-03.pdf; Australian National Audit Office, Administration of the Superannuation Lost Members Register, Audit report no. 17, 2005-06, November 2005, p. 74.

99. Each year from 1989-1999 the Commonwealth Treasury produced a publication entitled 'Do We Have Any of Your Money?'. When ASIC was created in 1999 it published unclaimed money information in regular ‘ASIC gazettes’.

100. Australian National Audit Office, Administration of the Superannuation Lost Members Register, op. cit., pp. 11, 68 and 70. 101. Items 5-7 of Schedule 1, items 4-5 of Schedule 2, items 1-2 of Schedule 3, items 1-4 and item 7 of Schedule 4 of the Bill. 102. Treasury, Submission to the Senate Economics Committee, op. cit., pp. 5-6. 103. Explanatory Memorandum, pp. 7, 10, 14 and 17. 104. Treasury, Submission to the Senate Economics Committee, op. cit., p. 13.

24 Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012

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Whether an individual bank account will be better off being left with the financial institution or transferred to the Commonwealth under the proposed arrangements will depend on the interest that accrues to the account and the relevant fees and interest rates that apply. Circumstances will vary from account to account. For example, several submissions to the Senate Economics Committee inquiry to the Bill noted instances where individuals would be worse off if balances were transferred.

105

In its submission to the Senate Economics Committee, Treasury provided examples of the benefits of paying interest at the rate of CPI for a range of individuals. 106

Over the past seven years, the rate of CPI has generally been below the interest rates that have applied to cash management and term deposit accounts, although if a transaction account does not pay interest, a return based on the CPI will be positive (figure 2).

Figure 2: Comparison between bank interest rates and the consumer price index, June 2005-June 2012 (per cent)

Sources: Reserve Bank of Australia, Statistics, Table F4: Retail deposits and investment rates, viewed 20 November 2012, http://www.rba.gov.au/statistics/tables/index.html; Australian Bureau of Statistics, Consumer Price Index. Australia September 2012, cat. no. 6401.0, 24 October 2012, Tables 1 and 2, CPI: All Groups, Index Numbers and Percentage Changes, viewed 20 November 2012, http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6401.0Sep%202012?OpenDocument

105. ING Direct, Submission to the Senate Economics Committee, Inquiry into the Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012, 12 November 2012, p. 2, viewed 19 November 2012, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=economics_ctte/treas ury_unclaimed_money_2012/submissions.htm

106. Treasury, Submission to the Senate Economics Committee, op. cit., pp. 5-6.

-1%

0%

1%

2%

3%

4%

5%

6%

7%

Transaction account ($5000)

Banks cash management savings account ($10,000)

Banks cash management savings account ($10,000)

Average rate banks term deposits ($10,000)

Consumer price index

Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012 25

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Treasury noted that of those bank account balances most recently transferred, half had a balance of less than $1275—suggesting that many of these accounts are transaction accounts. 107 Interest rates

paid by the four major banks on transaction accounts range from zero to 0.01 per cent, whilst the fees applied to those accounts can be in the order of $2 to $6 per month.

Superannuation

Superannuation account balances are partly protected from being eroded by fees due to requirements that for certain balances of less than $1000, a trustee of a fund (excluding self-managed superannuation funds (SMSFs) and defined benefit funds) cannot charge administration costs against most of the member’s account balance which will exceed the investment earnings for a given member reporting period.

108 However, the protection does not apply to fees that relate to life and other insurance.

As with bank accounts, the extent to which a person would be affected by having their superannuation funds transferred to the Commonwealth where it would attract an interest payment equivalent to the CPI would depend on a range of factors including the balance of the account, the type and scale of fees that apply and the investment returns credited to the account.

The level and structure of fees varies between superannuation accounts and providers but generally comprises a fixed administrative cost, and variable management and investment costs that are calculated on the account balance.

Information from 2008 indicates that fees for an account with a $1000 balance were in the order of 2.5 per cent to 3.4 per cent for some types of superannuation funds. 109 More recent fee information

presented by Treasury to the Economics Committee suggested that fees for accounts with a low balance (that is, less than $5000) were in the order of 3.94 per cent for small corporate master trusts and 2.26 per cent for industry funds. 110

While investment returns vary from fund to fund and across

different products, investment returns provided by large superannuation funds have averaged 3.8 per cent over the past ten years. 111

The Explanatory Memorandum and Minister’s second reading speech refer to the benefits that would accrue in certain cases:

 a 20-year-old with $1000 currently inactive in super, is expected to be able to claim $1131 from the ATO after five years (assuming average CPI inflation of 2.5 per cent), a boost to their superannuation savings of over $700 compared with current arrangements and

107. Ibid., p. 4. 108. Regulation 5.17, Superannuation Industry (Supervision) Regulations 1994. 109. Treasury, Superannuation clearing house and the lost members framework, discussion paper, November 2008, p. 12, viewed 8 November 2012,

http://archive.treasury.gov.au/documents/1442/PDF/Superannuation_Clearing_House_and_Lost_Members_ Framework_DP.pdf 110. Treasury, Submission to the Senate Economics Committee, op. cit., pp. 7-8. 111. Australian Prudential Regulation Authority (APRA), Statistics: annual superannuation bulletin, APRA, June 2011 (issued 29 February 2012), p. 6, viewed 8 November 2012, http://www.apra.gov.au/Super/Publications/Documents/June%202011%20Annual%20Superannuation%20B ulletin.pdf

26 Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012

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 a 30-year-old with $2000 is expected to be able to claim $2263 from the ATO after five years, a boost to their superannuation savings of over $1000 compared with current arrangements. 112

Treasury estimates based on average balanced fund superannuation returns over the past ten years and average administration and insurance fees indicated that the return after the deduction of fees and insurance for balances up to $2000 is typically negative. 113

‘Uncontactable’ members

The Bill proposes to increase the threshold amount at which the superannuation account of a ‘lost’ member is transferred to the Commissioner of Taxation from $200 to $2000. 114 Had the

$200 threshold been indexed when it was introduced from 1 July 2010, it would be approximately $275 in nominal terms at the end of 2012. 115

Estimates prepared for the Association of Superannuation Funds of Australia suggest that over 1.5 million accounts on the lost members register might be subject to the changes proposed by the Bill, with an average balance likely to be just under $400. 116

One superannuation fund administrator

estimated that of the 600 000 accounts across a range of funds that have been reported to the lost members register, around 370 000 accounts would be closed and paid to the Commissioner of Taxation. The administrator also estimated that around 80 per cent of the accounts that would be closed are associated with the increase in the threshold to $2000, with the remaining accounts associated with the shorter inactivity time period.

117

As noted earlier, for the purposes of the Unclaimed Money and Lost Members Act, a lost member is, amongst other things, a person who is ‘uncontactable’. The test to be applied in determining whether a person is ‘uncontactable’ is that the fund has never had an address for the member or that two written communications (or one if the trustee chooses) have been sent to the member and returned unclaimed.

118 Whether or not there are any contributions being made to their account is not taken into consideration.

Several industry groups argue that retaining this definition of ‘uncontactable', when combined with the higher proposed threshold of $2000, will lead to accounts being defined as ‘lost’ and the balance transferred to the Commissioner of Taxation even when contributions are being received. 119

112. Explanatory Memorandum, p. 16. 113. Treasury, Submission to the Senate Economics Committee, op. cit., p. 8. 114. Item 5 of Schedule 4 of the Bill. 115. Parliamentary Library estimates, based on Australian Bureau of Statistics, ‘Consumer price index, Australia,

September 2012’, cat. no. 6401.0, 24 October 2012, tables 1 and 2, CPI: all groups, index numbers and percentage changes, viewed 20 November 2012, http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6401.0Sep%202012?OpenDocument 116. Association of Superannuation Funds of Australia, op. cit., p. 6. 117. Ibid., pp. 6-7. 118. Regulation 1.03A, Superannuation Industry (Supervision) Regulations 1994. 119. Association of Superannuation Funds of Australia, op. cit., p. 5; Financial Services Council of Australia, Submission to the Senate Economics Committee, Inquiry into the Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012, 9 November 2012, p. 2, viewed 19 November 2012, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=economics_ctte/treas ury_unclaimed_money_2012/submissions.htm; Australian Institute of Superannuation Trustees, Submission to the Senate Economics Committee, Inquiry into the Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012, 9 November 2012, p. 1, viewed 19 November 2012,

Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012 27

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The Association of Superannuation Funds of Australia noted that:

The initial rationale for the definition of an “uncontactable lost” member was that—if there were returned mail for the member—the member may have lost contact with the fund or even be unaware of the fund in which they were a member. As such, it was decided that they should be reported to the ATO’s Lost Member Register to enable them to be reunited with their fund (should they be lost) and, accordingly, the definition “erred on the side of caution” and was deliberately broad. No consequences flowed for the member from being reported to the ATO as a lost member.

Now that uncontactable lost members could have their accounts transferred to the ATO the definition should be re-examined. Members with returned mail being treated as “uncontactable members” without any reference to activity reveals two main issues in the context of transferring amounts to the ATO

1. it does not make sense to transfer accounts which are still receiving contributions; and

2. in an era where engagement with members is much broader than mailed communications— trustees should be able to recognise that where a member is engaging with the fund, say by accessing their account on-line or dealing with the fund’s call centre, they can be considered not to be uncontactable for the purposes of the [Act].

120

To remedy this situation, the Australian Institute of Superannuation Trustees (AIST) and the Financial Services Council proposed that the definition of ‘uncontactable’ needed to be amended to specify a period of inactivity (of two years) so that active uncontactable accounts were not transferred. 121

The

Association of Superannuation Funds of Australia’s proposed solution incorporates the AIST’s suggestion about inactivity but also proposes that a member who has specific contact with a fund (by email, telephone or logging on to their account on-line) within a (two year) period does not need to be transferred.

122

The increase in the threshold for uncontactable members to $2000 will make it more likely that members who are uncontactable under the current definition, but who are receiving contributions, will have their accounts transferred to the Commissioner of Taxation. Such a situation adds to costs for the industry as a whole (and consequently lowers returns to members). Those are costs which may be avoided in the future under several Government proposals. It is arguable that the requirement to transfer the balances of these types of members is not beneficial to the individual or the industry as a whole and that a specific exclusion should be put in place to cater for lost members whose accounts are active.

Unclaimed moneys under the Corporations Act

Schedule 5 of the Bill proposes to change arrangements relating to the administration and distribution of unclaimed moneys and properties under the Corporations Act. The Bill does not change the current law relating to when company money or company property is classified as being ‘unclaimed’, or the periods that currently determine when moneys become ‘unclaimed’ under the Corporations Act.

http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=economics_ctte/treas ury_unclaimed_money_2012/submissions.htm; Mercer, op. cit., p. 4. 120. Association of Superannuation Funds of Australia, op. cit., pp. 5-6. 121. Australian Institute of Superannuation Trustees, op. cit., pp. 3-4; Financial Services Council, op. cit., p. 3. 122. Association of Superannuation Funds of Australia, op. cit., p. 9.

28 Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012

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The Bill proposes to repeal the provisions of the ASIC Act that establish the CUMSA. 123 In addition,

there are consequential amendments to remove references to the CUMSA in the Corporations Act

Item 6 repeals the existing reference to the six-year period after which funds are to be transferred from CUMSA to consolidated revenue and references to CUMSA; and replaces the existing provisions so that claimed amounts are paid out of money appropriated by the Parliament. The existing provisions relating to ASIC’s role in management of claims are retained.

Items 7 and 8 operate so that amounts paid to claimants on, or after, 1 July 2013 will attract an interest payment in accordance with regulations and that these amounts are paid from money appropriated by the Parliament. The regulations may prescribe different rates for different periods and a zero interest rate may apply. The Explanatory Memorandum notes that it is intended that interest will be calculated in accordance with the CPI and that a zero rate will be able to be prescribed where the CPI does not change between given periods.

124

The abolition of CUMSA will mean that all funds available in what was the special account will be able to be used by the Government. The ‘savings’ recognised as a result of this change effectively represents the bringing forward of six years of funds that would have been in CUMSA that are available in 2012-13.

123. Item 1, Schedule 5 of the Bill. 124. Explanatory Memorandum, p. 23.

Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012 29

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