Super news for November 2021

Cut-off age for bring-forward rule confirmed

The SMSF Association reports that it has received clarification from Treasury that the proposed extension of the non-concessional contribution bring-forward rule to people aged 67 to 74 will not have a phase-in period.

“Treasury has confirmed that the amendments, which are currently before parliament, simply move the current cut-off age for the bring-forward rule from needing to be under age 67 to needing to be under age 75 from 1 July 2022,” the association revealed on social media.

Under the bring-forward rule individuals can contribute up to $330,000 in a single year.

Poor performing super funds still have sticky membership

Only a small fraction of members in MySuper superannuation funds that failed the recent performance test have moved funds, according to the Australian Prudential Regulation Authority (APRA).

Thirteen funds out of the 76 assessed MySuper funds failed the performance test, which was released at the end of August. Those funds were then required to write letters to members to notify them. However, from the 1.1 million member accounts in products that failed, APRA says fewer than 68,000, or 7%, have since closed.

“The trustees of APRA-regulated superannuation funds have a legal duty to act in the best financial interests of their members, and APRA is working hard to ensure they fulfil that obligation,” APRA executive board member Margaret Cole said.

“That’s not a reason for members to sit back and avoid taking steps to act in their own best financial interests by ensuring they are in a high performing super product.”

APRA is urging more members to actively engage with their super. “Research shows that the difference in outcomes between a top product and an underperforming one can amount to hundreds of thousands of dollars over a working life,” Cole said.

SMSFs not beating the market over the longer term

The majority of SMSF portfolios fail to beat the market, according to a white paper from the Monash Business School’s Monash Centre for Financial Studies.

In the paper – Is there wisdom within the crowd? Evidence from the Australian Self-managed Super Funds – Dr Nga Pham, Dr Bei Cui and Dr Ummul Ruthbah analysed a sample of more than 40,000 SMSF portfolios from the SelfWealth database.

“Median annualised returns were indeed lower than those of the S&P/ASX200 and S&P/ASX300 over various timeframes ranging from one to eight years, and the gap widened for longer time horizons,” the paper concluded.

The authors found that fewer than half of the SMSFs they looked at managed to beat the market in financial year 2019–20, while less than a quarter beat it over the eight-year period analysed.

Results were analysed on a gross basis and did not take into account costs such as transaction costs, administrative costs and franking credits. Another finding the authors noted was that SMSF investors avoided much of the panic selling of March 2020.

“The analysis of the investment strategies of these self-managed super funds during the onset of the COVID pandemic was very interesting. We have seen no evidence of panic behaviour. What we have seen was a swift and huge decline in value of many portfolios but then a very fast recovery for most of them,” Pham told the Retirement Puzzle podcast from the Monash Centre for Financial Studies.

Superannuation portfolio holdings disclosure regulations finalised

Australians will have access to information about how super funds are investing their money following the finalisation of new regulations dealing with portfolio holdings disclosure by superannuation funds.

Under the requirements, superannuation funds must disclose information about the identity, value and weightings of their investments. Members will be able to see how much of their retirement savings are being invested by funds across a range of asset classes and derivatives, making it easier for members to compare products and identify the most suitable fund for them.

Reviews of the superannuation system have found that superannuation portfolio disclosure lacks transparency, does not meet global best practice and limits how much members can know about where their retirement savings are invested.

Under the regulations, super funds will be required to first report their holdings by 31 March 2022, with portfolio holdings disclosure to occur every six months thereafter.

The Association of Superannuation Funds of Australia (ASFA) said the regulations will achieve greater transparency for consumers whilst recognising the potential effect on investment outcomes.  “ASFA supports the objective of increased transparency of superannuation for consumers, however, we have long advocated that it was important that this be done in the best interests of fund members,” said ASFA CEO, Dr Martin Fahy. 

Super Consumers Australia Director Xavier O’Halloran said “Super funds will no longer be able to hide where they’re investing your money. The disclosure will help Australians see if their fund is investing in line with their values while delivering on their best financial interests. Increasingly we’re seeing funds badge their products as ethical and sustainable, but in some cases, fund members have no way of ‘looking under the hood’ to see if these claims match reality.”

New ID requirements now required for directors

Company directors now need to verify their identity following the introduction of new requirements designed to prevent the use of false and fraudulent director identities.