Labor's unclaimed money changes reversed

The Government made a surprise announcement yesterday that it would amend the Banking Act and Life Insurance Act to restore the time bank accounts and life insurance policies could be inactive before they were transferred to a government holding account.

The time period will be changed from three back to seven years, as it was before the Labor Government's controversial change in 2012.

The announcement comes after a Treasury discussion paper on the issue last year citing several reasons why a three-year period of inactivity was unsuitable - but which appeared to suggest the preferred option was a move to five years, not back to seven.

The unclaimed money provisions of the Banking Act and the Life Insurance Act are aimed at preserving the value of money that might otherwise be lost or eroded by fees. Details of unclaimed money transferred to the government are searchable on the Australian Securities and Investments Commission's MoneySmart website and can be reclaimed.

Authorised deposit-taking institutions are required to transfer to the government all inactive accounts - that is, accounts that have not had a transaction other than interest accrued or fees deducted for a specified period. Term deposit accounts are exempt.

An account holder can notify their ADI that they are aware of the account and do not want it to be considered inactive.

Life insurance companies are required to transfer to the government all sums of money payable on the maturity of a policy that are not claimed within a specified period from the maturity date.

Under the 2012 changes that period of inactivity was reduced from seven to three years.

This change caused disruption for account holders because of the big increase in the number of accounts declared unclaimed, and for industry because of the need to implement new systems and develop much more active administrative procedures.

The Treasury discussion paper said: "It is not clear that the current arrangements strike the appropriate balance between re-uniting people with their money and the costs that the recent changes have imposed on the industry. Instances do exist where bank accounts that are effectively active are being declared inactive and transferred to the government."

The paper canvassed three options: leaving the inactivity period at three years; extending it to five years; and putting it back to seven years.

It cited research by stakeholders, which said that if the period of inactivity was extended to five years the number of unclaimed accounts could fall by half, which would be a substantial saving in terms of administration, and would not involve the same risk of loss that a seven-year period of inactivity posed.

The Prime Minister's announcement did not explain why the Government opted to go back to seven years, rather than five.

The Government will remove the requirement that ASIC publish an Unclaimed Money Gazette. The Information Commissioner had raised concerns about the potential for the gazette, which contains detailed personal information, to be used for identity theft.

People will still be able to search for information about unclaimed accounts on the Money Smart website.

The changes will apply to the next unclaimed money deeming date of December 31 this year.