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How Superannuation Exit Fees Could Affect You

Mr Jeffrey Lucy, Chairman of the Australian Securities and Investments Commission (ASIC), this week announced that a recent inquiry by ASIC found that at least 550,000 Australians have 'old style' or 'legacy' superannuation accounts bought from life insurance companies in the 1980s and 1990s that might be subject to significant 'exit' (or termination) fees if they try to move their money out of these funds.

Many of these products were bought before the introduction of compulsory superannuation in 1993 and are not now open to new members. They were typically sold by the life offices as long-term savings products.

Under the contracts governing a lot of these products, the exit fee doesn't expire until the account holder reaches retirement age or achieves a target account balance. While this is consistent with the original terms of those contracts, it is an important matter that requires careful consideration.

ASIC recommends that people whose superannuation accounts might be subject to these exit fees should check with their fund before making any decision to stop, renew or top-up contributions, or to withdraw money.

'In theory, if everyone with these "old style" superannuation accounts left their fund today, they would be charged in aggregate more than $950 million in fees by the product providers - which works out to an average of about $1,700 per person', said Mr Lucy.

'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', he said.

'People going into a new fund today also need to understand the different fee options available. ASIC has found that about one-third of people going into new superannuation products are choosing an exit fee option rather than paying entry fees where this 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 said.

The legacy funds that ASIC 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. The money is recovered, either through exit fees or, if the member stays in the product, through ongoing fees.

These funds generally won't waive exit fees on request. However, some funds have told ASIC that they offer solutions that can reduce the impact of exit fees on members' superannuation balances, including:

  • migrating their legacy products into newer-style superannuation products with short-expiry fees and other features
  • allowing members to withdraw some of their money without incurring an exit fee if they leave some money in the fund until expiry
  • encouraging members to keep contributing by providing new features or other incentives.

If you have a complaint

People who think that their fund paperwork did not properly explain that exit fees might be payable, or were not told about exit fees at all when they first bought their product, should complain directly to the fund, and then to an independent complaints scheme if their complaint is not resolved. The two independent complaint schemes are FICS and SCT. Both can be contacted on 1300 780 808.

If you are preparing a complaint about an exit fee, it is important that you think carefully about the reasons for your complaint. You should also go back through the paperwork you were given at the time you bought the product, even if it was a long time ago. Generally, neither ASIC nor the schemes can do anything about a complaint that is just about the amount of the fee. It is a different thing if the exit fee was not properly disclosed.

Copyright ASIC, 21 March 2005.

This article is not a substitute for independent professional advice. We do not warrant the accuracy, completeness or adequacy of the information or material in this article. All information is subject to change without notice. We and each party providing material displayed in this article disclaim liability to all persons or organisations in relation to any action(s) taken on the basis of currency or accuracy of the information or material, or any loss or damage suffered in connection with that information or material. You should make your own enquiries before entering into any transaction on the basis of the information or material in this article. Please ensure you contact us to discuss your particular circumstances and how the information provided applies to your situation.

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