The delayed 2020/21 Federal Budget contains few truly new changes for superannuation.
Stapling of super accounts to members
Arguably the biggest announcement is the ‘stapling’ of super fund accounts to members. Subject to legislation, from 1 July 2021 employees won’t tell their employer about their super fund. Instead the employer will get the information from the ATO. This means that someones super fund will follow them from job to job, preventing the creation of new super accounts. The Government estimates this change will result in 2.1 million fewer unnecessary super accounts, over 10 years, and save around $2.8 billion in fees and charges.
While this may appear new, it was actually a recommendation of the Financial Services Royal Commission – and a recommendation that the Government agreed with in February 2019. Though it didn’t warrant a deadline in the – now delayed – implementation roadmap.
YourSuper comparison tool
The ATO will be tasked with developing an online system, called YourSuper, which will let new employees select a super fund from a table of MySuper products. The table of products will be ranked by fees and investment returns.
The Government estimates this change – or more accurately people selecting better performing funds – will result in $3.3 billion more in superannuation over 10 years.
This measure appears similar to recommendations by the Productivity Commission report into the super system, which called for an independent expert panel to decide on a shortlist of “best in show” super funds to show to new employees. Despite having the report since December 2018, the Productivity Commission still says: “There has not been a government response to this inquiry yet.”
Annual performance test for MySuper
“By” 1 July 2021, the Government will have APRA subject MySuper products to an annual performance test. Funds that fail the test will have to inform members of such, and also tell them about the YourSuper comparison tool. Underperfomring funds will be listed as such on YourSuper, and if they fail two consecutive tests they won’t be allowed to accept new members. It is unclear what will count as ‘underperforming’. The Government estimates this will lead to an increase in superannuation of $10.7 billion over 10 years.
The annual performance tests will be extended to other super funds by 1 July 2022. The reason for the delay is unclear.
The Productivity Commission had recommended enhanced testing of MySuper and Choice super products.
New best financial interest duty
By 1 July 2021, super fund trustees will have to comply with a “new duty to act in the best financial interests of members”.
“Trustees must demonstrate that there was a reasonable basis to support their actions being consistent with members’ best financial interests,” says a Budget 2020/21 factsheet.
The Government estimates this will boost superannuation by $1.1 billion, again over 10 years, by “reducing waste in the super system through more transparency and accountability”. Though details on this new duty are limited. It may be related to recent complaints by members of the Coalition backbench that the sole purpose test is inadequate, particularly – in their view – as it relates to spending by industry super funds.
The Financial Services Royal Commission considered the sole purpose test, and related issues, and found that: “…the existing rules, especially the best interests covenant and the sole purpose test, set the necessary standards. Those standards should be applied according to their terms and without more specific elaboration.”
Other changes to super
Other changes to superannuation in the Budget papers are largely restating decisions – mostly delays – already announced, given it has been longer than usual since the last Federal Budget.
It is noteworthy that some superannuation changes from the 2019/20 Budget are still before the Parliament – such as increasing the age for the non-concessional contributions bring forward rule.
Increasing the maximum number of members an SMSF can have is also currently before the Parliament – this was included in the 2018/19 Budget, but the Bill was only introduced in September 2020. That Budget also included 3 year audits for SMSFs, but it is unclear if that remains Government policy.
More to come.