The AMP Limited (ASX: AMP) share price will be on watch on Monday after the embattled financial services company released an update on the impact of the Protecting Your Superannuation Package Bill 2018.
What is this Bill?
This Bill amends the Superannuation Industry (Supervision) Act 1993 to prevent trustees of superannuation funds from charging certain fees and costs exceeding 3% of the balance of a MySuper or choice product annually where the balance of the account is below $6000.
In addition to this, it prevents trustees from providing opt out insurance to new members aged under 25 years, members with balances below $6000, and members with inactive MySuper or choice accounts, unless a member has directed otherwise.
It also amends the Superannuation (Unclaimed Money and Lost Members) Act 1999 to require the transfer of all superannuation savings with a balance below $6000 to the Commissioner of Taxation if an account related to a MySuper or choice product has been inactive for a continuous period of 13 months.
Further, it allows the commissioner to consolidate amounts that have been paid as unclaimed money, inactive low-balance accounts and lost member accounts into an active superannuation account where the reunited balance would be greater than $6000.
What will the impact be on AMP's business?
Whilst the Bill still requires final approval in the House of Representatives and could be amended further, the company has provided an estimate on the impact of the current amendments on its business.
According to the release, the indicative operating earnings impact on AMP's retained businesses in FY 2019 is expected to be approximately $10 million after tax, with an annualised impact of up to $30 million after tax from FY 2020.
Management advised that these estimates are prior to a number of potential mitigants, including offsetting actions to retain customers and revenue, administrative cost efficiencies and the consolidation of low balance super accounts from other industry participants into AMP active accounts.
The earnings impact will be mainly in its Australian wealth management business, which will be forced to transfer ~370,000 low balance superannuation accounts to the Australian Tax Office.
What now?
This is another blow to a company under significant pressure at the moment and another reason why I would suggest investors avoid it.
Although its shares look cheap, I think the brand damage done at the Royal Commission could mean it is some time before AMP is worth considering. So for now, I think investors ought to focus on financial sector peers Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) instead.
