Whilst the Government has not yet publicly released the results of its Retirement Income Review (commissioned back in September 2019), they have announced a number of changes designed to:
- avoid the unnecessary fees and insurance premiums associated with multiple super accounts
- make it easier for members to compare the fees and performance of super funds in the market, and identify well-performing funds vs underperforming funds
- introduce more accountability into the system
Keeping your super fund when you change jobs
Under our current system, most employees are able to pick the fund to which their employer must make their compulsory superannuation guarantee contributions. However, where the employee doesn’t make a choice, contributions are made to the employer’s default fund. This inevitably means that many individuals end up with multiple superannuation accounts when they change jobs, simply because they fail to nominate their existing fund as their “chosen fund”.
It is proposed that from 1 July 2021, an individual’s super fund will be “stapled” to them. If an employee does not nominate a fund at the time they start a new job, their new employer must pay their super contributions to their existing fund (rather than the employer’s default fund). Details of an employee’s existing fund will be available to their employer via the ATO.
The Government estimates this change will result in 2.1m fewer unintended multiple super accounts over 10 years, saving approx. $2.8b in duplicate fees, insurance premiums and lost earnings.
It is not yet clear how these rules would work if the employee already has multiple super accounts at the time they change jobs.
Annual performance test for funds
The Government also proposes introducing annual benchmark testing on the investment performance of super funds, starting with MySuper products (ie the low fee, low option accounts which employers can choose as their default fund) from 1 July 2021.
The testing will be performed by APRA and if a fund is deemed to be “underperforming”, it must inform its members of its underperformance by 1 October 2021. Funds that fail two consecutive annual underperformance tests will not be permitted to accept new members and will not be able to re-open to new members until a further annual test shows that the fund is no longer underperforming.
By 1 July 2022, annual performance tests will be extended to other superannuation providers. However, it is not expected that these rules will apply to SMSFs. It is not yet clear how the Government will define “underperforming”.
The Government expects that holding underperforming funds to account will mean at least $10.7b more in retirement savings over 10 years.
Online fund comparison tool
The Government proposes introducing a new, interactive, online YourSuper comparison tool to help individuals decide which super product best meets their needs.
By 1 July 2021, the YourSuper tool will:
- provide a table of MySuper products ranked by fees and investment returns,
- list the funds which have been ranked as underperforming,
- include links to super fund websites where individuals can choose a MySuper product, and
- show an individual’s current super accounts and prompt them to consolidate them if they have more than one.
By 1 July 2021, it is proposed that super fund 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.
Again, it is not expected that this new best interest duty will apply to SMSF trustees.
If you haven’t done so, it would be well worth registering for our Super Intensive Day on 5 November as we will be presenting our latest thinking on all things SMSF.