Successive Federal Governments have made updates to superannuation, not only in regard to contributions, tax treatment and the payment of benefits, but more recently to the obligations and requirements of employers and superannuation funds.
2021 is predicted to continue this trend, following a number of significant announcements made in last year’s federal Budget, as well as the long-awaited release of the Retirement Income Review.
This also comes at a time where debate has become increasingly louder regarding the legislated increase to the Superannuation Guarantee, which is due to increase from 9.5% to 10% from 1 July 2021, and then in 0.5% increments at 1 July each year, reaching 12% from 1 July 2025.
The federal Budget
As part of the federal Budget in October last year, the government announced the "Your future, your super" package with 4 key areas of focus:
- Preventing the creation of unintended multiple superannuation accounts, by ensuring a member’s superannuation is “stapled” to them, staying with them as they change jobs.
- Making it easier for members to compare between and choose a well-performing product.
- Holding superannuation funds to account for underperformance.
- Increasing the transparency and accountability for how superannuation funds use members’ savings.
It’s important to note these are only proposed changes by the government and have not been legislated.
In many ways these changes build upon changes already proposed as a result of increased scrutiny of superannuation funds by the government and regulators since 2019, when both the Hayne Royal Commission and Productivity Review into superannuation were presented to the government.
A new tool will help people to compare super funds
It is proposed that from 1 July 2021, an online YourSuper comparison tool will allow consumers to compare the fees and performance of superannuation funds, assisting them in deciding which superannuation product best meets their needs. The YourSuper tool will:
- Provide a table of simple super products (MySuper) ranked by fees and investment returns.
- Link users to super fund websites where they can choose a MySuper product.
- Show users their current super accounts and prompt them to consider consolidating accounts if they have more than one.
Super funds will follow members to new job
Account “stapling” is also proposed to be introduced from 1 July 2021, meaning that:
- If an employee does not nominate an account at the time they start a new job, employers will pay their superannuation contributions to the employee’s existing fund.
- Employers will obtain information about the employee’s existing superannuation fund from the ATO.
- 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 the employer’s nominated default superannuation fund.
MySuper products will be subject to an annual performance test
The Budget also announced that super funds offering MySuper products will face greater regulatory scrutiny and will be required to pass an annual performance test. In particular:
- If a fund is deemed to be underperforming, it will need to inform its members of its underperformance, initially by 1 October 2021, and provide information about its underperformance on the YourSuper comparison tool.
- Underperforming funds will be listed as underperforming on the YourSuper comparison tool until their performance improves.
- Funds that fail two consecutive annual performance tests will not be permitted to accept new members unless their performance improves.
Key findings from the Australian Retirement Income Review
In 2019 the Federal Government commissioned an independent review into Australia’s Retirement Income system, with a focus on the “three pillars” of the system, being:
- The Age Pension,
- Compulsory (employer supported) superannuation, and
- Other voluntary savings, including home ownership.
In its final report the review made no recommendations, but it has provided valuable insights into the system and areas for consideration in future policy development. Key insights included:
- That the Australian retirement income system is largely “effective, sound and its costs broadly sustainable”.
- Complexity, misconceptions and low financial literacy mean that there needs to be improved understanding of the system through better information, guidance and “good, affordable financial advice”.
- That an income replacement benchmark of 65-75% of pre-retirement income would provide an “adequate retirement income”.
- That the legislated increase in Superannuation Guarantee (SG) to 12% would likely see the suggested income replacement benchmark exceeded for most.
- That any increase in SG may adversely affect future wage growth.
- Retirees are generally reluctant to draw down their savings in retirement due to complexity, a lack of guidance, reluctance and concerns about future costs or outliving savings.
- It also appears that most regard superannuation as the accumulation of wealth, from which they live of investment returns, rather than an asset they draw down on.
- That home ownership is the most effective component of voluntary savings and is an important factor in influencing retirement outcomes.
- A significant number of retirees who are renting in the private market will require additional assistance.
- There should be effective options for accessing equity in the home, noting its current exemption from Age Pension means tests acts as a disincentive to using equity.
- Improved fairness could be created through removing the $450 per month earnings threshold above which SG is paid, paying SG on paid parental leave, giving greater visibility of superannuation savings in divorce settlements and the better enforcing of SG payment.
- The current design of tax concessions in the system has created inequality, favouring those on higher incomes.
More information on these topics will be shared with you as the details are finalised and become legislated, particularly, how identifying a new employees’ “stapled fund” will be managed between employers and the ATO.