Your Future, Your Super: The Implications You Need to Know
The Treasury Laws Amendment (YourFuture, YourSuper) Bill 2021 was finally passed by parliament on 17 June 2021. The Government has set aside $159.6 million over four years to execute superannuation reforms that claim to save members $17.9 billion over the next ten years, with many of them taking effect on 1 July 2021.
Initially introduced in the October 2020 Federal Budget, the YourFuture, YourSuper package has faced strong opposition, but it was eventually passed into law with some significant amendments.
They are highly described as the most significant reforms to super since compulsory super's introduction in 1992. These reforms will guarantee that the super system works better for all Australians by taking underperforming funds into account, solidifying protections around the nation's retirement savings, and of course, reducing waste.
Depending on your perspective, either the YourFuture, YourSuper package may wow you or disappoint you, or it's just perfect for you!
Here are the essential amendments:
New interactive YourSuper comparison tool
The Australian Taxation Office (ATO) has created a new interactive online YourSuper comparison tool to facilitate members selecting the super product that best meets their needs.
The YourSuper comparison tool will provide a table of different MySuper products ranked by investment returns and fees; and will show a member's current super accounts and notify users to consolidate more than one account. The tool can also link to superfund websites where members can select a MySuper product.
YourSuper is expected to result in $3.3 billion in greater member balances in the next decade by assisting Australians in choosing a solid performing fund rather than an underperforming one. Based on the government, a new Australian employee in their 20s may be better off at retirement by $87,000, while someone in their 50s could be better off by $60,000.
Your super will be 'stapled' to you
Your very first MySuper account will be 'stapled' to you if you shift jobs. This approach is intended to prevent the unintentional creation of duplicate or even multiple super accounts, thus eliminating additional fees and insurance premiums that chip away at members' retirement funds.
Unless an employee nominates an alternative fund at the time s/he starts a new job, the employers will pay superannuation contributions to an employee's existing super fund. By logging onto ATO online services and entering the employee's details, employers will obtain information on the existing super fund. Upon selection of an account, the employer will pay superannuation contribution into that employee's specific account.
On the other hand, if an employee has no existing super account and has no decision regarding a fund, the employer's contribution will be paid into their nominated default superannuation fund.
Employees should only be placed into a default super fund by their employer when they first start working or if they do not have one already, according to the Productivity Commission's 2019 recommendation. After that, they should only switch into a new superfund when they choose to, not when they start new employment.
Over the next ten years, this move is expected to result in 2.1 million fewer multiple accounts, thereby saving Australians $2.8 billion in redundant fees and insurance.
Holding funds to account for underperformance
Since 1 July 2021, the Australian Prudential Regulation Authority (APRA) was scheduled to commence benchmarking tests on their net investment performance. MySuper funds have been scrutinized much further to protect members against underperformance.
If a fund's net returns fall short of a predetermined benchmark, it is required to notify its members of the underperformance. At the same time, the fund will be required to provide members with information on the YourSuper comparison tool, which will mark the fund as underperforming.
If a fund fails the test for two years in a row, it will be unable to accept new members until its performance improves, or it declares bankruptcy and merges with another fund.
Based on the government, Australians who invest in the worst-performing MySuper fund during the entirety of their working life might be worse off in retirement by $98,000. Over ten years, the amendment is expected to improve retirement savings by $10.7 billion.
The Productivity Commission also advocated the underperformance test. While the criteria will not apply to all super funds at first, Treasury anticipates that it will apply to 90% of APRA-regulated funds for members in the accumulation phase within a year.
Boosting transparency and accountability
The government has also enhanced super trustee requirements to guarantee that they exclusively act in members' best financial interests.
In advance of Annual Members' Meetings and through expanded Portfolio Holdings Disclosure, super funds will be expected to offer more transparent information about how they manage and spend members' money.
Before the Bill was sent to the Senate, a more contentious provision was removed, permitting the Treasurer to veto super fund investments.
But wait, this may also mean more for you.
The maximum number of members in a Self Managed Superannuation Funds (SMSF) has increased from four to six after the Treasury Laws Amendment (SMSF) Bill 2020 on 17 June 2021.
The SMSF industry overwhelmingly supported this move, which takes effect on 1 July 2021; however, commentators acknowledged that it would have limited appeal.
The SMSF Association has supported the six-member funds and noted the approval of the Bill. Even though the association do not anticipate that the change will result in a significant increase in the number of SMSFs being created, the increase will still provide greater investment flexibility, better investment choice and reduced fees.
However, adding members from many generations of the same family could complicate decision-making and lead to arguments over investment strategy and estate planning, according to Graeme Colley, Executive Manager, SMSF Technical & Private Wealth at SuperConcepts.
More flexibility to increase your super
The Treasury Laws Amendment (More Flexible Superannuation) Bill 2020, which allows people to contribute more to super and increase their retirement savings, was passed on 17 June 2021 and took effect on 1 July 2021.
Non-concessional payments made on or after 1 July 2020 will be subject to "bring-forward" rules for those aged 65 and 66. This aligns the rule with prior adjustments that allowed persons aged 65 and 66 to continue contributing to their super accounts even if they didn't meet the job requirement.
The excess concessional contributions charge, which now applies if you contribute more than the $27,500 yearly concessional contributions threshold, will also be eliminated under this Bill. Inadvertent breaches of the cap will not be penalized under this legislation.
Furthermore, you can now play catch-up if you withdraw money from your super fund under the COVID-19 early release program. You can re-contribute these sums as non-concessional contributions over and above the $110,000 annual threshold beginning in the fiscal year 2021/22.
These last two reforms were amendments to the Bill proposed by One Nation.
Super industry's mixed reactions
Brendan Coates, director of the Grattan Institute's economic policy program, praised the YourFuture, YourSuper package but felt it didn't go far enough. The underperformance test entails "taking a few bad apples out of the barrel". However, it does little to compel otherwise ordinary funds in raising the bar even further.
Coates believes the government should embrace the Productivity Commission's recommendation that Australians who do not choose a fund are automatically enrolled in "best in show" funds chosen by independent experts. According to him, this would boost total returns since funds would compete to make the shortlist and stay on it.
Sally Loane, CEO of the Financial Services Council (FSC), stated that the FSC had supported stapling and performance benchmarks for a very long time. She claims that stapling alone will save Australian workers around $1.8 billion in fees in the first three years.
The task now for regulators and the government is to ensure that performance assessments use rigorous and comparable data for all products to make like-for-like comparisons.
The FSC also praised the 'More Flexible Super' legislation, which it claims will make managing super and retirement planning easier for older Australians.
Industry Super Australia (ISA), which represents industry super funds, has continued to be a vocal opponent. Stapling, according to ISA CEO Bernie Dean, could trap millions of Australians in harmful super products and cost them about $230,000 in retirement savings.
Australians could only be shackled to funds that pass the performance criteria, according to ISA. It said that more than $500 billion in member savings are still sheltered from performance testing, including products savaged by the Banking Royal Commission, which is a further blow to employees. (The majority of the things that have yet to be added are retail items.)
Super Consumers Australia, a consumer advocacy group, applauds the legislation, claiming that it will weed out many underperforming funds and assist consumers in finding better retirement savings options.
According to Xavier O'Halloran, director of Super Consumers Australia, the reforms will save people more money as they consolidate their super accounts in one, thus putting a stop to multiple accounts.
He claims, however, that there is still work to be done, such as extending the performance test to encompass additional money and eliminating unnecessary insurance. He stated that Treasury's review into occupational exclusions and limits in insurance should be a top priority so that no one is stapled to a fund that provides insufficient insurance for their occupation.
Where to find more information
What the Tool Does
YourSuper Comparison Tool
Choosing a Superfund