Administration of the Superannuation Lost Members Register
The objective of the audit was to assess the ATO's administration of the LMR. Specifically, the audit sought to: examine and report on aspects of LMR governance; assess the systems, processes and controls used by the ATO to capture and process LMR data reported by providers; examine the mechanisms and strategies the ATO uses to gain assurance that providers are complying with LMR legislation; and assess the mechanisms and strategies the ATO uses to promote awareness of, and enable access to, the LMR.
Background and Context
Superannuation is a large and complex area of tax administration. In addition to revenue collection the Australian Taxation Office's (ATO) superannuation role focuses on the regulation and preservation of the retirement income system.
As at 30 June 2005, the ATO's superannuation activity covered approximately $19 billion in member contributions and $38 billion in employer contributions per annum. Total superannuation assets under management within Australia grew by approximately 17 per cent during the 2004–05 financial year to $742 billion.
The ATO's superannuation responsibilities have grown significantly in the 13 years since the introduction of the Superannuation Guarantee (SG). The Government has increasingly focussed on its retirement income policy, introducing broad and rapid changes that have challenged the ATO's capacity to efficiently administer its superannuation responsibilities. 1
The Lost Members Register
The Lost Members Register (LMR) is a central register of separated superannuation fund members and retirement savings account holders maintained by the ATO.2 The LMR contains information sent to the ATO by a superannuation provider (provider), or its supplier. 3
From 1996 to 1999, the ATO administered the LMR on delegation from the then Insurance and Superannuation Commission (largely due to its experience in system administration—particularly large-scale data matching). This changed with the introduction of the Superannuation (Unclaimed Money and Lost Members) Act 1999, which establishes the legislative framework supporting the ATO's administration of the LMR. The aim of the Act is to re-unite people with their lost superannuation, particularly casual and itinerant workers and those with broken employment patterns. The Act and its accompanying regulations outline responsibilities for providers and the ATO.
The key responsibilities for providers established by the LMR legislation include:
- reporting details about its lost members every 6 months;
- applying the lost member criteria—which is satisfied where a member:
- is uncontactable (no address details held or mail returned unclaimed);
- is inactive (no contributions for past two years); or
- joined the provider as lost 4; and
- lodging statements that contain a member's Tax File Number (TFN) (where this has been quoted to the provider).
The key responsibilities for the ATO established by the LMR legislation include:
- keeping a register of lost members containing the information received from providers ; 5
- granting lodgement extensions, however, failure by a provider to lodge data on its lost members may attract a penalty of up to $11 000; and
- reducing at an early stage the amount of lost superannuation that becomes unclaimed.
Where a member reaches 65 years of age, or has died, their superannuation monies become payable. Lost member accounts that satisfy relevant eligibility criteria, are deemed to be unclaimed superannuation. A provider that holds unclaimed superannuation must transfer the entire amount to the state or territory revenue office in which its headquarters is located. Under LMR reporting arrangements, providers notify the ATO of details for both lost members, and members whose superannuation has been forwarded to a relevant state or territory revenue office as unclaimed. A member may then be advised of the status of their lost account when they search the LMR.
Aggregate LMR information has consistently featured in the ATO's Annual Report. Since 1999–00, the LMR has grown in size from 4.7 million accounts worth approximately $7.3 billion to 5.4 million accounts worth approximately $8.2 billion at the end of 2004–05.
While the overall number and value of lost member accounts stored on the LMR has remained relatively consistent, the ANAO notes that during this time the LMR has actually decreased as a proportion of total superannuation assets under management during the same period. 6
The LMR is mainly comprised of a number of small value accounts. The ANAO found that during the past five years:
- around 40 per cent of accounts had a value of between $1 and $200. These accounts represent less than 2 per cent of the overall value of lost member accounts; and
- less than five per cent of accounts had a balance of $10 000 or more. These accounts represent almost 45 per cent of the overall value of lost member accounts.
The objective of the audit was to assess the ATO's administration of the LMR. Specifically, the audit sought to:
- examine and report on aspects of LMR governance;
- assess the systems, processes and controls used by the ATO to capture and process LMR data reported by providers;
- examine the mechanisms and strategies the ATO uses to gain assurance that providers are complying with LMR legislation; and
- assess the mechanisms and strategies the ATO uses to promote awareness of, and enable access to, the LMR.
Lost Members Register Governance
The ANAO identified a number of deficiencies with the Superannuation Business Line (SBL) governance framework as it related to the Superannuation Contributions Surcharge as part of ANAO Report No. 39 2004–05. At the time of audit fieldwork, the ATO was in the process of restructuring the SBL to better align with and support the broader ATO approach. This has impacted on LMR governance arrangements.
The ANAO found that, since July 2004, the ATO has adopted a co ordinated approach to restructuring the delivery of its superannuation products7. New accountabilities for the LMR were, however, still being finalised at the time of audit fieldwork. The ATO has put in place arrangements to strengthen the integration of the SBL and Operations at the senior management level. In addition, the SBL has taken steps to establish a more robust planning and governance framework, with clear links to, and input from, other parts of the ATO.
The ANAO considers the re-alignment of operational and IT aspects of the LMR with those areas of the ATO best equipped to deal with existing risks should enable the SBL to focus on improving LMR compliance and its management of strategic issues impacting the effectiveness of the LMR.
As part of the audit the ANAO reviewed LMR funding arrangements. Since August 1998 the Commonwealth (through financial sector levies collected by the Australian Prudential Regulation Authority (APRA)) has recovered almost $21 million from the superannuation industry to help cover the ATO's administration costs for the LMR.8 The ATO also obtained specific LMR funding as part of the 2004 Budget. From 2004–05 to 2006–07 the ATO will receive more than $10 million to undertake a letters project that aims to reduce the size of the LMR by directly notifying members that they have an account listed on the LMR.
The ATO advised that from its perspective the cost of administering the LMR is not linked to or guided by the amount of levy monies collected by APRA. The ATO only began to separately estimate LMR costs in 2002–03. During this time, the cost to the ATO of administering the LMR has exceeded the amount of levy monies recovered by the Commonwealth as part of the levy setting process (the ATO estimates that it has spent, on average, 93 per cent more on LMR administration than the amounts recovered by the Commonwealth as part of the levy setting process). This indicates that, since 2002–03, the ATO has funded additional LMR administration costs from within its overall appropriation funding.
The financial sector levy setting arrangements were reviewed by the Treasury and APRA in 2003, highlighting that the link between ATO activities funded by levies and the amounts raised were not well understood by the superannuation industry. It was recommended that the ATO ensure that its reporting of the use of levy funds satisfies the Government's cost recovery policy.
To achieve greater transparency and accountability regarding the use of levy funds, the ANAO considers the ATO should more accurately measure the cost of administering the LMR, and assist APRA to improve the links between this and the levy monies made available to it from the superannuation industry.
Lost Members Register Systems
To maximise the benefit for members and providers that access the LMR, it is essential the ATO implement effective data capture practices, which take full advantage of existing ATO expertise (particularly in relation to identity matching). The ATO should also maintain a robust system control framework to support the operation of the LMR system.
A member generally needs to input their TFN in order to access data captured on the LMR. The ANAO found that the level of TFN quotation for lost member accounts reported to the ATO by providers is low (approximately 37 per cent). The ATO is able to derive or confirm the reported TFN for around 81 per cent of lost member accounts, however, the remaining 19 per cent of accounts are unmatched and effectively redundant for enquiry purposes.
Since the introduction of the LMR the ATO has adopted an ad-hoc approach to identity matching lost member accounts. Consequently, it is likely that a large number of lost member accounts have never been sent for identity matching. The ANAO considers that, to improve the completeness of the identity matching process, the ATO should identity match all lost member records prior to their inclusion on the LMR. This would also align with the ATO's standard approach for other areas of tax administration.
With regard to the LMR system control framework, the ANAO found there was an absence of baseline specifications (which should provide an up-to-date description, and history, of all aspects of the LMR system). Without such documentation, the ATO cannot be sure that the LMR is operating as intended and in accordance with the LMR legislation.
Lost Members Register Compliance
The LMR legislation establishes clear responsibilities for providers regarding the provision of lost member data to the ATO. The effective administration of the LMR relies on the ATO gaining sufficient assurance that all providers are complying with their LMR obligations. All regulated superannuation funds (except for self managed super funds 9), approved deposit funds, eligible rollover funds 10 and retirement savings account providers are required to report details of lost members to the ATO.
Despite identifying the need to develop appropriate strategies to assist with the management of LMR compliance following the introduction of the LMR legislation, the ATO did not implement these. As the ATO noted at the time, by failing to ensure that providers lodge, and lodge accurate data in the approved form, the risk was that providers would form the view that the LMR is a low priority for the ATO and hence, would not provide adequate details of lost members for inclusion on the LMR.
To a large extent, this has proven to be the case. While the ATO has established useful relationships with many of the larger providers to improve their lost member reporting, a number of key risks have not been properly addressed. In particular, the ATO needs to enhance the functionality of the LMR system to assist with compliance activities — particularly in relation to being able to establish a reasonable understanding of the population of lost member data lodgers.
To be effective in re-uniting people with their lost superannuation the ATO also needs to improve the quality of data stored on the LMR. The ATO advised that a significant number of larger providers recently confirmed that there are problems with the quality of data previously lodged. In this respect, the ATO has signalled its intention to introduce measures to improve the quality of LMR data. 11
The ANAO considers the ATO has further opportunities to improve LMR data quality through lost member data matching. This includes implementing a more systematic approach towards matching lost member data with other superannuation data sets received from providers and making better use of the provisions of the LMR legislation that enable the ATO to share lost member data with state and territory revenue offices (the holders of unclaimed superannuation). 12
Accessing the Lost Members Register
The primary aim of the LMR is to re-unite people with their lost superannuation. As such, the effective administration of the LMR relies on how the ATO promotes and enables access to the information stored on the LMR.
The ANAO found that the ATO has been involved in two major initiatives to promote LMR awareness. The first of these was Lost Members Week — a partnership between the ATO and industry groups to promote LMR awareness by enabling the general public to make LMR enquiries via ATO staffed information booths in shopping centres across Australia during October 2002.
The second of these initiatives is the Letters Project, which aims to increase awareness of the LMR amongst members, and to motivate people to reclaim their lost superannuation accounts. It involves the ATO sending three million letters, over three years, to members concerning their lost superannuation accounts as recorded on the LMR. The ATO began to issue letters in February 2005.
The ATO offers SuperMatch and SuperSeeker as tools that enable providers and members to access details stored on the LMR.
SuperMatch allows providers to search the LMR for lost superannuation on behalf of their members by matching their members' details against those stored on the LMR. It is important that only authorised entities are allowed to perform SuperMatch exercises. 13 The ANAO found two instances where a systems deficiency had enabled unauthorised providers to conduct SuperMatch exercises. The ATO advised that this has now been corrected and that it has tightened its authority checking procedures related to the acceptance of SuperMatch files.
The ANAO also found that the majority of matches against the LMR resulting from SuperMatch exercises have been based on name matching, as opposed to TFN matching. 14 The ATO advised, however, that name based matches take a significantly longer time to process than TFN based matching. The ANAO considers that the ATO could improve the timeliness of SuperMatch exercises by identity matching all SuperMatch input records before matching these against details stored on the LMR.
SuperSeeker enables members to directly access details stored on the LMR. Available both online and via the telephone, it provides members with the contact details of providers holding any ‘possible matches'. To use SuperSeeker, members need to satisfy Proof of Identity (POI) requirements by quoting their TFN. While the ATO keeps track of the proportion of enquiries that satisfy POI requirements, it does not measure the effectiveness of SuperSeeker access by members. The ANAO considers that, to monitor the effectiveness of this service, the ATO should measure and report on the proportion of SuperSeeker enquiries that actually result in a match with ATO records.
The ANAO found the ATO has significantly restructured its governance arrangements for the delivery of superannuation products over the last 12 months. These measures are designed to integrate superannuation products with the ATO's broader operations. The revised arrangements have strengthened the LMR governance framework.
The ATO has established systems and controls to capture lost member data received from providers. However, the ANAO found shortcomings with the LMR system control framework and the ATO's approach to identity matching lost member data stored on the LMR.
While the ATO has established some compliance strategies for its larger providers the ANAO considers further steps are required to strengthen LMR compliance. In particular, the ATO should improve the functionality of the LMR system to support compliance activities and address problems with the quality and completeness of lost member data received from providers.
The ATO has implemented strategies and mechanisms to promote awareness of, and enable access to, the LMR. Two separate tools, SuperMatch and SuperSeeker, have been developed to allow providers and members access to lost member data. The ANAO considers that, given the recent changes to LMR administration, it is now timely for the ATO to evaluate the effectiveness of its strategies and tools used to reunite people with their lost superannuation.
The ANAO made eight recommendations aimed at improving the transparency of LMR funding, and the systems and compliance strategies used by the ATO in its administration of the LMR.
The ATO's administration process for the Lost Members Register is designed to ensure that the register is well maintained and easily accessible to individuals. The ATO has included in its design a significant investment in compliance strategies to ensure the information provided by the funds is timely and complete. The ATO is making use of its capacity to match with other information sources to improve data integrity, and continues to improve systems and processes. In addition, the ATO is undertaking a major campaign to inform and educate ‘lost' superannuation contributors about their entitlements. The campaign aims to increase awareness of the Lost Members Register and SuperSeeker, and to motivate individuals to reclaim their lost superannuation accounts.
The ATO welcomes the acknowledgement by the ANAO of the recent initiatives taken to strengthen the integration of the Superannuation business line and Operations at the senior management level, and that steps have been taken to establish a more robust planning and governance framework.
The ATO generally agrees with the recommendations contained in the report, but has qualified its agreement to one recommendation. However, to the extent recommendations propose system enhancements to the LMR they cannot be implemented in this way. For the next 3 years the ATO's system resources are fully committed on implementing new policy, the Change Program and superannuation systems rebuild (which at this stage only includes minor changes to the LMR), along with maintaining existing systems and undertaking urgent remediation work. The design team undertaking the rebuild has been asked to evaluate the recommendations in terms of the overall priority for the superannuation rebuild.
1 As outlined by the Commissioner of Taxation, page 9, ATO Annual Report 2003–04.
2 For the purposes of the audit, the term member is taken to cover both members of superannuation funds and holders of retirement savings accounts.
3 A superannuation provider is the trustee of a regulated superannuation fund, the trustee of an approved deposit fund, or the provider of a retirement savings account. A number of superannuation providers also rely on suppliers (or administrators) for the purpose of giving information to the ATO.
4 However, providers are not obliged to report where a member's address has been verified in the last two years or the member is permanently excluded from being lost (due to the member indicating that they wish to remain with the provider or where the member is a member of a Self Managed Superannuation Fund).
5 The ANAO notes that the ATO is given discretion to determine how the information on the LMR may be published. The only restriction is that TFNs must not be published or made available publicly.
6 In 1999–00 there was a total of $484 billion in superannuation assets under management. This had grown to $742 billion by the end of 2004–05.
7 The LMR was one of four superannuation products that were ‘corporately realigned' with the Operations line.
8 ATO related amounts account for approximately three per cent of all levy monies collected since 1998.
9 The ANAO notes, however, that despite being permanently excluded from the LMR reporting requirements, Self Managed Superannuation Funds may report lost members where the trustees of the fund decide that a member cannot be permanently excluded, or continue being permanently excluded, from being lost.
10 Eligible rollover funds (ERFs) have a prominent role in relation to lost superannuation. ERFs are required to treat all members as protected (as defined by the SIS Act). This basically means that administration costs incurred by the member cannot exceed the investment earnings of their benefit for any given reporting period. In addition, the balance of a member's benefit cannot be reduced below $1 000. Providers that do not wish to comply with member protections standards can transfer the benefit entitlements of affected members (generally lost members) to an ERF.
11 The ATO advised that consideration is being given to the use of a Cooperative Compliance Model (CCM) approach to improve LMR data quality. The CCM is an adaptation of the ATO's Compliance Model, and promotes the use of tailored responses to different taxpayers based on their compliance risk profile and compliance history. For further information about the CCM, refer to Cooperative Compliance—Working With Large Business in the New Tax System, available from the ATO's website, <http://www.ato.gov.au>
12 Apart from improving the quality of data stored on the LMR this would also assist state and territory revenue offices to manage compliance risks where a provider may have failed to transfer unclaimed superannuation.
13 To obtain authorisation, providers must sign a formal agreement to abide by the ATO's conditions of use. Key aspects of these conditions include obtaining member authority to be included in a SuperMatch exercise, and agreeing to treat all information received from the ATO confidentially.
14 Since July 2001 providers have input more than 24 million member records as part of SuperMatch exercises conducted by the ATO. During this time over seven million of these records (30 per cent) achieved a name based match compared to only two million (9 per cent) for TFN based matching.