Industry agrees the Government should get unclaimed cash but wants a system to find the rightful owners.

The superannuation industry has swung behind the Federal Government's plan to shift part of Australia's $13 billion mound of lost super into Government coffers from the middle of next year - but it warns that the move will not necessarily reunite more Australians with their money.

Under the proposal announced in this year's federal budget and introduced into parliament a fortnight ago, super providers will be required to transfer lost members' accounts - where the balance is less than $200 or the account has been inactive for five years - to the Australian Taxation Office (ATO).

Once the money is transferred to the ATO, any that remains unclaimed will end up in consolidated revenue. In other words, lost super will become a Government cash cow rather than one for the super industry, as it is now.

According to Superannuation Minister Chris Bowen, the first transfer will occur early in the 2010-11 financial year for lost accounts as of June 30 next year. "There will be long-term efficiency benefits for funds as they will no longer need to administer lost accounts," he says.

Under the current system, the cost of administering lost accounts is borne by all members of a fund.

Lost super accounts are created when people change jobs and forget to transfer their super but also when people work under false names or work illegally.

The head of SuperRatings, Jeff Bresnahan, says he has no problem with the shift. "There are 6.4 million lost accounts, which, in most cases, don't belong to anyone. If it ends up in consolidated revenue, that's good for taxpayers," he says.

After initially fighting the proposal, the peak body representing super funds, the Association of Superannuation Funds of Australia (ASFA), agrees.

"We think it's a good thing; it means something is starting to be done [about lost super]," says ASFA chief executive Pauline Vamos.

However, she doesn't believe the new measures will solve the problem. "There's an easy way to fix this: allow super funds to use tax file numbers as a primary identifier and encourage employers to transfer money electronically [into employee super accounts] using their tax file number," she says.

At present, many employers send super guarantee payments by cheque in the mail but the recipient's identity information is often wrong or insufficient.

Lost super accounts were originally set up to capture small balances left unclaimed but evolved into a $13 billion black hole - about 1 per cent of all super - almost by accident. While most accounts hold small amounts, some hold more than $10,000.

Super funds park any lost or inactive accounts in special funds called eligible rollover funds and must report the accounts to the ATO. However, these rollover funds have a reputation for fee-gouging and a very poor record of tracking lost members.

Bresnahan says management fees charged by rollover funds range up to 5 per cent, with an average of 2.25 per cent, compared with an average of 1.25 per cent for mainstream super funds. "Once the money goes in, it's unusual for it to find a way out and that's not what you want," says Bresnahan, who thinks the new system will force super funds to be more proactive in tracking down lost members.

The largest rollover fund, based on its 1.9 million accounts, and the one that's most successful at finding lost members is Australia's Unclaimed Super Fund. AUSfund is owned by the industry fund sector. Its executive director, David Haynes, says it has reunited $572 million with its owners over the past nine years and currently manages about $600 million.

ASFA estimates the number of accounts held in rollover funds could fall by 3.5 million, down from 5.9 million in June last year. Haynes estimates his fund alone will lose about 15 per cent of the money it manages to the ATO.

While accepting the inevitability of the Government's proposal, he argues that there is a missing step in the proposed transfer of funds. "Most of the money we return is through our own initiative," he says. "Before accounts are transferred to the ATO, there should be a mandated process to find the rightful owners."

AUSfund is actively campaigning for industry consolidation and is lobbying the Government to mandate how lost super should be managed and for the function to be put out to tender.

"We want to be charged with the task of directing money to members' accounts rather than having it go to consolidated revenue," Haynes says.

Bresnahan would also like to see government funding for a single point of access for lost super. As things stand, anyone who believes they may have lost super has to be extremely determined and clued up to track it down.

The ATO has a search tool but even under the new system, it won't be responsible for all unclaimed monies so you may need to contact past employers to find out which super fund they sent your contributions to. The fund may then direct you to their rollover fund.

To track down lost super, check the ATO SuperSeeker search tool at ato.gov.au/superseeker or call 132 865.

A black hole

About $13 billion worth of super is lost or unclaimed.

From July next year, lost accounts with less than $200, or inactive for five years, will be transferred to the Tax Office.

Members can still claim lost super from the Tax Office.

Critics says more needs to be done to match lost super with its rightful owners before it is redirected into the public purse.