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The Government has committed $159.6 million over four years to implement superannuation reforms that it says will save members $17.9 billion over the next decade.
The reforms include a new comparison tool – called YourSuper – to help members compare and select a superannuation product, and a performance test for underperforming superannuation funds.
“Too many Australians are paying too much in superannuation fees,” Federal Treasurer Josh Frydenberg said in his Budget speech.
“At $30 billion a year, the superannuation fees Australians pay exceed the cost of household gas and electricity bills combined.”
1. New YourSuper comparison tool
The Australian Taxation Office (ATO) will develop systems that will enable new employees to select a superannuation product from a table of MySuper products in a YourSuper portal.
The tool will provide a table of MySuper products, ranked by fees and investment returns, and show a member’s current super accounts, with a prompt to consolidate accounts if they have more than one.
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By helping Australians select a good performing fund rather than an underperforming one, YourSuper is projected to result in $3.3 billion in higher member balances over ten years. The government gives examples of a typical Australian entering the workforce in their 20s could be around $87,000 better off at retirement, while someone aged 50 could be around $60,000 better off at retirement.
The tool is expected to be available by 1 July 2021.
2. Your super will follow you
Frydenberg went on to announce that new superannuation accounts will no longer be created every time a worker moves jobs.
An existing superannuation account will instead be ‘stapled’ to a member to avoid this. In its Budget papers the government also announced that further enhancements would be made in the future to “enable payroll software developers to build systems to simplify the process of selecting a superannuation product for both employees and employers through automated provision of information to employers”.
From the Budget fact sheet:
By 1 July 2021:
- If an employee does not nominate an account at the time they start a new job, employers will pay their superannuation contributions to their existing fund.
- Employers will obtain information about the employee’s existing superannuation fund from the ATO.
- The employer will do this by logging onto ATO online services and entering the employee’s details. Once an account has been selected, the employer will pay superannuation contributions into the employee’s account.
- If an employee does not have an existing superannuation account and does not make a decision regarding a fund, the employer will pay the employee’s superannuation into their nominated default superannuation fund.
It is estimated that this measure will result in 2.1 million fewer multiple accounts over ten years, saving Australians about $2.8 billion in duplicate fees and insurance over that time.
The Productivity Commission recommended in 2019 that employees should only be placed into a default super fund by their employer when they first start working, or if they do not have an existing super fund. After that they should only move into a new super fund when they choose, not whenever they start a new job.
3. Holding funds to account for underperformance
MySuper products will also come under increased scrutiny from 1 July next year when the Australian Prudential Regulation Authority (APRA) will start benchmarking tests on their net investment performance. Products that underperform for two consecutive years will be prevented from accepting new members until a test shows they are no longer underperforming. Other superannuation products will begin to be tested from 1 July 2022.
“Poor performing funds will have nowhere to hide and will be required to notify their members of their underperformance,” Treasurer Frydenberg said.
If a fund is deemed to be underperforming, it will need to inform its members of its underperformance by 1 October 2021. At the same time the fund will need to provide their members with information about the YourSuper comparison tool, and the fund will be marked as underperforming in the tool.
The government estimates that a typical Australian spending their working life in the worst performing MySuper fund could be up to $98,000 worse off at retirement. The measure is projected to increase retirement savings by $10.7 billion over ten years.
4. Increasing transparency and accountability
In the fourth leg of the superannuation reforms, obligations on superannuation trustees to ensure their “actions are consistent with members’ retirement savings being maximised” will be strengthened.
Super trustees will be required to comply with a new duty to act in the best financial interests of members, and demonstrate that there was a reasonable basis to support their actions being consistent with members’ best financial interests.
The Government will also require super funds to provide better information regarding how they manage and spend members’ money in advance of Annual Members’ Meetings.
The measure is projected to increase retirement savings by $1.1 billion over ten years.
Mixed reactions from the super industry
The Financial Services Council (FSC) CEO Sally Loane welcomed the YourSuper ATO portal and said “new APRA powers to weed out chronic underperformance” were a “long-overdue reform”.
ASFA CEO Dr Martin Fahy said that ASFA supported measures to lift MySuper standards, but how any changes are made would need to be carefully considered. “We don’t suffer from a shortage of good funds and we need to ensure that these measures don’t reduce competitive intensity or damage the nation-building role of superannuation,” he said.
“In the absence of the release of the Retirement Income Review and the lack of specificity in the Budget papers, it is unclear how the changes will work in practice or what the implications will be for competition, efficiency and incumbents in the sector. We need to avoid reducing the complexity of MySuper to a singularity without any reference to the nuance of member preferences and long-term fund performance,” Fahy added.
Industry Super Australia said that the government was right to pursue reforms to weed out underperforming funds and eliminate multiple accounts, but was concerned that ‘stapling’ members to a fund could leave them tied to a dud. Chief executive Bernie Dean said, “The low-cost workplace default system has protected workers from being ripped off by unscrupulous players. These reforms must build on and improve those foundations – not undermine them.”
The Australian Institute of Superannuation Trustees (AIST) said that the industry needed to see more details around how this measure would work. AIST chief executive officer Eva Scheerlinck said, “We need to ensure that people are not in danger of being mis-sold or stapled to an underperforming fund outside the default system.”
Scheerlinck also raised the issue of insurance cover in super funds relating to occupation. “For instance, someone whose first out-of-school job is working in a call centre who then goes on to work in the mining industry may be stapled to a fund where they don’t qualify for insurance protection,” Scheerlinck said.
CPA Australia general manager external affairs Dr Jane Rennie said: “The announcement to ensure portability of superannuation accounts is a good step towards reducing unnecessary cost of lost superannuation for individuals. It is disappointing that the Budget did not include support for Australians to rebuild their superannuation savings after so many accessed their superannuation accounts to survive financially as a result of COVID-19.”
Consumer advocacy group Super Consumers Australia welcomed the reforms, saying they will “lift standards across the sector” and “leave more people with more money in retirement”.
Director Xavier O’Halloran said, “As the Treasurer noted in his speech tonight, Australians are paying too much in fees across multiple accounts. These reforms clean up zombie accounts that have eaten away people’s retirement savings for too long.”