Superannuation changes

RECENT CHANGES TO SUPERANNUATION – WHAT YOU SHOULD KNOW

The superannuation industry in Australia is enormous. In the Your Future, Your Super paper released in October 2020, the Federal Treasurer estimated that the super system managed $3 trillion on behalf of 16 million Australians.

In 2019 the Productivity Commission released the report from its 3 year comprehensive review of the super system. It found that structural problems in the system resulted in lower retirement balances for millions of members. Employees having multiple super accounts was one problem identified in the review. In many (and perhaps most) cases employees do not nominate a fund for their compulsory super contributions, so the employer contributes to its default super fund. As people change jobs, they can end up with multiple low-balance accounts all charging fees and insurance premiums. The Australian Taxation Office (ATO) has estimated that around 6 million multiple accounts are held by 4.4 million people, and over one third of multiple accounts are held by people aged 35 or younger. The Federal Government’s solution is to introduce the “stapling” of super funds to employees. A stapled super fund will generally be a super account which has received contributions for the employee in the past. From 1 November 2021, if a new employee does not nominate a super fund, the employer will need to log into the ATO online services to request the details of the employee’s stapled super fund. A tax agent can also do this for an employer. If the ATO advises that the employee does not have a stapled super fund, contributions can be paid into the employer’s default fund. Note that contractors who are mainly paid for their labour are employees for super guarantee purposes. Another problem is that many people are disengaged from the super system because they feel it is complex and confusing, and they lack the ability to compare rival super products. Experience has shown that younger employees in particular tend to be focussed on establishing their career, buying a house, or starting a family — or perhaps all three — rather than considering their savings for retirement. Part of The Federal Government’s solution is to set up an online comparison tool which displays a quarterly updated table of MySuper products ranked by fees and investment returns. You can view the tool at https://www.ato.gov.au/ YourSuper-Comparison-Tool/ Another part of the solution is an annual benchmark performance test of all MySuper products to be conducted by the Australian Prudential Regulatory Authority (APRA). APRA released the results of its inaugural MySuper Product Performance Test on 31 August 2021. 76 MySuper products with at least five years of performance history were assessed, and 13 products — accounting for $56 billion in assets and 1 million member accounts — failed to meet the benchmark. Trustees of the failed products were required to write to their members advising them of the outcome of the performance test and providing details of the ATO’s YourSuper comparison tool. You can see the results at https://www.apra. gov.au/your-future-your-super-performance-test The nature of the performance test has been criticised by industry associations. The Association of Superannuation Funds of Australia (ASFA) has warned that super members should treat the results with “extreme caution”, arguing that the published results don’t tell members why and by how much their fund has failed the test, and that the benchmark does not take account of factors like risk, lifecycle or environmental, social and governance (ESG) screening considerations. There is also the old adage that “past performance is no indication of future performance”, and the funds which failed the test this year might have bright futures. Members of the funds which failed the test should certainly seek expert advice before moving their super balances, and Nexia’s team of investment advisers would be pleased to assist if desired. Nexia is a top-10 global accounting and advisory network. At Nexia Sydney we offer full service accounting solutions for small to medium enterprises, large private company groups, not-for-profit entities, subsidiaries of international companies, publicly listed companies and high net worth individuals and includes market leaders in many sectors of Australian business. When you choose Nexia, you get a more responsive, more personal, partner-led service. www.nexia.com.au