How the 2020 Federal Budget could change super for employers

Last Tuesday’s Federal Budget included a package of superannuation reforms, which – if passed – could transform the way employers manage default super.

Super accounts to follow workers when they change jobs

Instead of employers creating new super accounts for employees who join their company, under the proposed reforms workers would instead be “stapled” to the first super fund they join and take that account with them from job to job.

The Government said this measure is intended to reduce the number of multiple accounts in the super system. According to the Treasurer, Australians are currently paying $450 million a year in unnecessary fees on six million multiple super accounts.

For employers, this change would mean that from 1 July next year:

• super would need to be paid into a new employee’s existing super account using information obtained through the ATO’s online services; and
• new entrants to the workforce without an existing super account could either choose their own fund, or have an account created with the employer’s default fund.

However, concerns have been raised – which we imagine many employers would share – about how this change could negatively impact members:

• who join and stay with an underperforming super fund; or
• whose insurance through super may not be appropriate if they move from a low-risk occupation into a higher risk one. (Currently, many industry super funds tailor their insurance products to broadly cater for the types of occupations undertaken by their members.)

While members would still be able to switch super funds at any point, many younger Australians in particular are disengaged with super and may not take this active step until later in life, risking years of underperformance that could affect their retirement outcomes.

YourSuper portal and penalties for underperformance

To help people find the best super fund for their needs, the Government plans to launch “YourSuper”, an online comparison tool providing information about fund returns and fees.

Furthermore, super funds will have to meet an annual performance test and notify members if they have underperformed. Any fund that fails the test two years in a row will be banned from accepting new members until it can demonstrate improved performance.

This measure would apply to default MySuper funds – such as First Super’s Balanced Option – from July 2021, and to all other options from July 2022.

No word on the Superannuation Guarantee (SG) timeline

The SG rate is scheduled to rise to 10% on 1 July 2021, and to 12% by 2025, but it remains uncertain whether this increase will go ahead, with the Federal Government refusing to commit to the legislated change. The Treasurer did not address the topic of the SG timeline in the Budget.

Similarly, the temporary Early Release of Super Scheme was not addressed, but it has since been confirmed that this will not be extended beyond the 31 December 2020 cut-off.

WE’RE HERE TO HELP. SO LET’S TALK.

To discuss any of the above, or for help with any super matter, please contact the Member Services Team on 1300 360 988 or mail@firstsuper.com.au.