If you believe the federal government’s public relations campaign, MySuper will deliver the equivalent of nirvana in superannuation – low fees, strong investment performance, financial security and a worry-free retirement.
Pardon? You haven’t seen the government’s MySuper publicity campaign? I am not surprised because there is not one skerrick of public information designed for consumers explaining what MySuper means for individual fund members.
‘What is MySuper?’, you may ask. A good question since the federal government and the super fund industry have been talking to themselves about MySuper, and have largely forgotten to mention this major change to fund members – you know, us; consumers – the sole reason the superannuation industry exists.
Also, I don’t believe they have fully informed the hundreds of thousands of employers who will be required to change payroll systems and pay super contributions into MySuper super funds (for those employees who have not actively chosen their own super funds), rather than paying those contributions into the hundreds of existing super funds currently receiving super contributions.
Did you know that from 1 January 2014, your employer’s super contributions may be going to a new super fund, known as a MySuper product? Did you know that you may end up with one super fund holding your super balance accumulated up to the end of December 2013, and another super fund holding your super savings accumulated from January 2014? And from July 2017, those 2 super accounts may then be combined into the MySuper product?
Continue reading to find out what is going to happen to the super accounts of Australian consumers in the next 12 months.
Listed below are some of the questions (and answers) that SuperGuide anticipates will be asked about the introduction of MySuper, and the proliferation of new super products. We will add further questions, and update our responses, as more information (correction: when any consumer information) becomes available.
- Why is the government introducing MySuper?
- What is going to happen under MySuper?
- What does MySuper mean for your super account?
- What if I have a SMSF, or I don’t want to move to a MySuper fund?
- How do I know that my super fund is a MySuper fund?
- What fees can a MySuper fund charge?
- What about my life insurance cover?
- Does my super pension move to a MySuper fund?
Answer: In short, the Government’s intention is to “create a new simple, low cost default superannuation product called MySuper”, which will replace the super funds of around 80% of all fund members. According to the Government’s Stronger Super website, effective from 1 July 2013 super funds can offer “a simple, low cost default superannuation product called MySuper to improve the simplicity, transparency and comparability of default superannuation products.”
Note: The federal government reports that the majority of Australians do not make an active choice about where their super money is placed, and in what way that money is invested, which means most super money is held in default super funds, and invested in default investment options. Although most Australians do have the right to choose their own super fund (about 30% don’t have a choice), around 80% of those who can choose their own leave it to their employers, or their union, to make the decision for them.
Answer: The significant news is that from January 2014, your employer’s super contributions will be going to a new super fund (a MySuper super fund), while your old super account may continue to exist, which potentially means two sets of super fees, and a lot of confusion among fund members.
I will explain further what MySuper is expected to deliver later in the Q&As, and in future articles, but from January 2014, only superannuation funds that meet the MySuper standards will be able to accept compulsory employer contributions (Superannuation Guarantee) for those Australians who have not chosen their super fund.
From January 2014, your existing super account may continue to operate while your employer makes super contributions to a new super fund. By July 2017, your super balance in your old (existing) account must be moved to the MySuper product that started taking your employer’s super contributions in January 2014.
Confused? I don’t blame you. Over the next few months we will provide updates on what the MySuper rules mean for fund members, and for employers.
Answer: According to the federal Government, MySuper products will have a simple set of product features, irrespective of who provides them, including a single diversified investment option. This will enable members, employers and market analysts to compare funds more easily based on a few key differences. It is also designed to minimise the chances of fund members paying for any unnecessary ‘bells and whistles’ they do not need or use.
APRA, the super regulator, will be able to publish fee and performance data for all MySuper funds, which hopefully will enable fund members to easily compare their super fund against the other super fund.
The inference from the introduction of this new low-cost product is that super funds were too expensive, too complex and an overall mystery to Australians. Well, a lot of that inference is probably true but many current superannuation funds are likely to satisfy the MySuper requirements.
All existing superannuation funds will be able to apply to offer a MySuper product, and MySuper products will replace existing default superannuation funds. What this will mean for Australian consumers who are fund members of the largest super funds in Australia is that their current super fund will become a MySuper super fund and you will then continue on ‘as normal’.
The only potential complication to this statement is where you may not have chosen your super fund, but you have actively chosen specific investment options within that super fund, or you have actively chosen an investment option for part of your super balance. As I currently understand the MySuper rules, your employer super contributions will still move to a MySuper fund from 1 January 2014, but your super balance in your old account won’t have to be moved across to the MySuper fund from July 2017 because you have made some type of active choice with your existing super account, albeit investment choice.
Important: If your super fund is decided via an industrial award or workplace agreement, then your employer’s compulsory super contributions must also be paid to a MySuper fund from January 2014. Fair Work Australia is going to review the default superannuation funds included in industrial awards and agreements to ensure that they offer a MySuper product.
Answer: MySuper only replaces existing default products, where Australians have not made an active choice of super fund. Even where you have not made an active choice as of today, you can still make an active decision to choose a super fund other than a MySuper fund.
If your employer’s super contributions are being paid to a self-managed super fund, then this arrangement will not be affected by the MySuper rules because you are not considered a ‘default fund’ member.
Answer: Super fund trustees wanting to offer a MySuper product must hold a specific MySuper licence issued by APRA. The first MySuper licence was issued on 14 February 2013, although hundreds more are expected to be issued in the coming months.
Answer: A MySuper super fund can only charge the following types of fees, and they also have to be described using these terms to enable comparison with other super funds:
- administration fee
- investment fee (including a restricted performance-based fee)
- buy and sell spreads (limited to cost recovery);
- exit fee (limited to cost recovery)
- switching fee (limited to cost recovery)
- member-specific costs, such as account splitting as a result of a family law decision.
Superannuation funds that are not MySuper products, such as those super funds that may still hold your accumulated super balance (pre-January 2014 balance), can also choose to charge other fees.
Answer: If you have an accumulated super balance with accompanying insurance cover, you may not also want insurance cover in your new MySuper account. Trustees of a MySuper fund must allow members to opt?out of life and TPD insurance within 90 days of the member joining a fund, or on each anniversary of the member joining the fund. If MySuper trustees are unable to obtain opt-out cover at a reasonable cost, trustees of MySuper products must offer compulsory insurance.
Before you do opt out of life insurance, check the insurance cover that you have in both super funds to ensure you are comparing like with like. If your existing super fund has transformed into a MySuper product, then you may not have to make any changes to your insurance cover.
Answer: At this stage, MySuper super funds will not be providing super pensions, which means, your employer super contributions may be going to a different super product, than where your super pension is held. If you have made an active choice about where your employer’s super contributions should be paid, then your super money will not be moved to a MySuper product.