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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.
On 17 June 2021, the government’s Treasury Laws Amendment (Your Future, Your Super) Bill 2021 passed through parliament.
Originally announced in the October 2020 Federal Budget, the Your Future, Your Super package met with some heated opposition but eventually made it over the finish line with some notable amendments.
The government says the new measures, many of them starting on 1 July 2021, will save Australians $17.9 billion over ten years.
Touted as the most significant reforms to super since the introduction of compulsory super in 1992, Treasurer Josh Frydenberg said the measures will ensure the super system works harder for all Australians by reducing waste, holding underperforming funds to account and strengthening protections around the nation’s retirement savings.
Depending on your point of view, the Your Future, Your Super package goes too far, not far enough or, as Goldilocks said of Baby Bear’s porridge, it’s just right.
Here are the key changes.
1. New YourSuper comparison tool
The Australian Taxation Office (ATO) has developed a new interactive online YourSuper comparison tool that will make it easier to choose a new fund or a better fund.
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.
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 who could be around $87,000 better off at retirement, while someone aged 50 could be around $60,000 better off at retirement.
The tool has now been released with limited functionality.
2. Your super will follow you
For members who don’t choose a fund when they start a new job, so their employer’s Super Guarantee payments go into a default fund nominated by their employer, a new super account will no longer be created every time you start a new job.
Instead, unless you elect to choose a fund, your first super account will be ‘stapled’ to you when you change jobs. This measure is designed to prevent the creation of unintended multiple super accounts, hence avoiding extra fees and insurance premiums that erode members’ retirement savings.
From the Budget fact sheet:
From 1 November 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 2021 when the Australian Prudential Regulation Authority (APRA) will start benchmarking tests on their net investment performance.
If a fund’s net returns fail to meet a set benchmark it must inform its members of its underperformance. At the same time, the fund will need to provide members with information about the YourSuper comparison tool, and the fund will be marked as underperforming in the tool.
Funds that fail the test for two consecutive years won’t be able to accept new members until their performance improves, or they hold up the white flag and merge with another fund.
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.
The underperformance test was also recommended by the Productivity Commission. While it won’t cover all super funds initially, Treasury estimates that 90% of APRA-regulated funds for members in accumulation phase will be subject to the test within a year.
4. Increasing transparency and accountability
The government has also strengthened obligations on super trustees to ensure they act only in the best financial interests of members.
Super funds will be required to provide better information regarding how they manage and spend members’ money in advance of Annual Members’ Meetings and through enhanced Portfolio Holdings Disclosure.
A more contentious measure allowing the Treasurer to veto investments made by super funds was carved out of the legislation before it went to the Senate.
But wait, there’s more …
It’s been a long time coming, but the maximum number of members in an SMSF has increased from four to six, after the Treasury Laws Amendment (Self Managed Superannuation Funds) Bill 2020 was also passed on 17 June 2021.
This measure, which takes effect from 1 July 2021, had widespread support from the SMSF sector, although commentators agreed that it would have limited appeal.
The SMSF Association summed up the response. “While we don’t expect this change will lead to a significant increase in the number of SMSFs being established, it will provide greater flexibility, choice and lower fees for those in a position to use it.”
However, Graeme Colley, executive manager, SMSF Technical & Private Wealth at SuperConcepts, warned that adding members from multiple generations of the one family could complicate decision-making and give rise to conflicts around investment strategy and estate planning.
More flexibility to boost your super
Also passed on 17 June 2021 was the Treasury Laws Amendment (More Flexible Superannuation) Bill 2020, which gives people more options to contribute to super and boost their retirement savings.
Bring-forward arrangements have been extended to people aged 65 and 66 for non-concessional contributions made on or after 1 July 2020. This brings the bring-forward rule into line with previous changes allowing people aged 65 and 66 to continue making super contributions without meeting the work test.
This Bill will also remove the excess concessional contributions charge, which currently applies if you contribute more than the annual concessional contributions cap of $27,500. This measure, which comes into effect on 1 July 2021, will mean you won’t be penalised for inadvertent breaches of the cap.
In addition, if you withdraw money from your super under the COVID-19 early release scheme, you now have the opportunity to play catch-up. From the 2021–22 financial year, you can recontribute these amounts as non-concessional contributions over and above the existing $110,000 annual cap.
These last two measures were amendments to the Bill proposed by One Nation.
Mixed reactions from the super industry
The Grattan Institute economic policy program director Brendan Coates welcomed the Your Future, Your Super package but said it doesn’t go far enough. “The underperformance test amounts to taking a few bad apples out of the barrel. But it does little to force otherwise average funds to lift their game.”
Coates says the government should accept the Productivity Commission’s recommendation to default Australians (who don’t choose their fund) into one of a shortlist of “best in show” funds selected by independent experts. He says this would improve returns overall because funds would compete to make the shortlist and stay there.
Financial Services Council (FSC) CEO Sally Loane said the FSC had long-supported stapling and performance benchmarks. She said stapling alone will save Australian workers up to $1.8 billion in fees over the first three years.
“The challenge now for regulators and government is to ensure performance assessments use rigorous and comparable data for all products so that comparisons are undertaken on like-for-like basis.”
The FSC also welcomed the ‘More Flexible Super’ legislation that, it says, will make it easier for older Australians to manage their super and retirement planning.
Industry Super Australia (ISA), which represents industry super funds, remains an outspoken critic. ISA chief executive Bernie Dean said stapling could trap millions of Australians into dud super products, costing them almost $230,000 in retirement savings.
ISA had argued for amendments that Australians could only be stapled to funds that pass the performance test. It said a further blow to workers is that more than $500 billion of member savings are still shielded from performance tests – including products savaged by the Banking Royal Commission. (Most of the products not yet included are retail products).
Consumer advocacy group Super Consumers Australia welcomes the legislation, saying it will weed out many underperforming funds and help consumers find better options for their retirement savings.
Super Consumers Australia director Xavier O’Halloran said: “The reforms will help people save money by keeping their super in one account, putting a stop to multiple zombie accounts.”
However, he says there’s more to do. Namely extending the performance test to cover more funds and removing inappropriate insurance. He said Treasury’s review into occupational exclusions and restrictions in insurance must be a high priority so no one is stapled to a fund that provides inadequate insurance for their occupation.