AUSTRALIA - Members of "old style" or "legacy" superannuation accounts could be subject to significant exit fees if they try to move their money out of these funds when choice of fund legislation is introduced, the Australian Securities and Investments Commission (ASIC) has warned.
Chairman Jeffrey Lucy said a recent inquiry by ASIC found at least 550,000 Australians have these type of accounts, bought from life insurance companies in the 1980s and 1990s. Many of the products were purchased before the introduction of compulsory super in 1993 and are no longer open to new members.
ASIC said the accounts were typically sold as long-term savings products. Under the contracts governing many of them, the exit fee doesn’t expire until the account holder reaches retirement age or achieves a target account balance.
“In theory, if everyone with these ‘old style’ superannuation accounts left their fund today, they would be charged in aggregate more than AUS$950m in fees by the product providers – which works out to an average of about AUS$1,700 per person,” Lucy said.
“It is important that anyone considering moving out of one of these older legacy funds carefully weighs up all the costs, including the impact of exit fees on their savings. The best option might well be to stay in the fund until the exit fee runs out.”
Lucy said about one-third of people going into new superannuation products are choosing an exit fee option rather than paying entry fees if the option is available.
“However, the exit fees on current products are on a much smaller scale than those payable under the legacy funds, and any exit fee is usually extinguished if the person has been contributing to the fund for between three and five years,” he added.
ASIC said the legacy funds it spoke to advised that the long-expiry exit fees were largely designed to recover money that was paid out by the product providers in commissions to agents and advisers who sold the products.
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