A superannuation reform package passed through Parliament on Thursday after months of heated debate, ushering in what Treasurer Josh Frydenberg characterised as the biggest change to the $3.1 trillion sector in nearly 30 years.
“These are the most significant reforms since compulsorily super came in in 1992,” Treasurer Josh Frydenberg told ABC’s “News Breakfast” Friday morning.
“These are significant reforms about lowering fees of super for Australians,” he added.
Here’s what you need to know.
Perhaps the biggest change is the way Australian employees will now be “stapled” to a superannuation fund.
Instead of being directed towards a new super fund each time a worker changes field, they will be stuck to one fund, unless they actively nominate a swap to a new one.
The move is designed to stop Australians doubling (or tripling, or quadrupling…) their service fees across multiple superannuation funds when they take on a new role, saving workers millions of dollars and streamlining their super holdings.
Australians will still be free to change their fund as they see fit. But Industry Super Australia, which oversees some of the nation’s biggest funds, says the move could see workers unknowingly tied to underperforming funds.
“We’ll monitor the impact of the Bill and may press future Parliaments to mandate that Australians can only be stapled to the best performing funds and not the worst ones,” ISA chief executive Bernie Dean said in a statement.
Under the legislation, superannuation funds will be subject to annual performance testing by the Australian Prudential Regulation Authority (APRA), to determine whether they are generating sufficient returns for beneficiaries.
If a super fund falls short of APRA’s testing metrics, it will need to inform its members. If a fund fails to meet those benchmarks two years in a row, it will be barred from accepting new beneficiaries.
The federal government hopes this ‘less carrot, more stick’ approach will push superannuation funds to work harder for their members and encourage members to seek other options if their chosen fund is lagging behind.
Those tests have received overall support from the superannuation industry, yet some reservations remain.
In April, Martin Fahy, CEO of advocacy group The Association of Superannuation Funds of Australia, said the changes “have the potential to mitigate investment distortions foreshadowed by the industry when the benchmark was first announced.”
ISA said the tests represent “a vital improvement to the system”.
But in its current iteration, the tests only apply to MySuper products, which are the default funds linked to workers when they enter a new role.
The rules should be expanded beyond MySuper funds, ISA said, claiming that some funds exempted from the new performance tests are “some of the worst in the system”.
The push to ‘staple’ workers to their funds will come into effect November 1 — a month after the first new performance reviews come to light.
In addition, the federal government has hailed the creation of a new ‘YourSuper’ online portal, where Australians can trace the performance of varying funds without leafing through a litany of performance updates.
Financial best interests
Another key point of contention has been the “financial best interests” test, which the federal government hopes will strengthen regulatory oversight of how super funds deploy their funds, above and beyond existing checks and balances.
The provision came as part of a broader push to knuckle down on spending outside of the ‘traditional’ super remit, but the federal government did not get away with all the changes it hoped for.
Before the Bill was passed in the Senate, the Coalition was forced to drop an extremely contentious provision allowing the Treasurer to hold veto powers over a super fund’s specific investments.
It was an “ideological overreach that even many Coalition MPs opposed,” the ISA said in a statement, referring to outspoken Nationals MP Barnaby Joyce, who said such a power could “have an immense sway on the economy of the nation”.
“After almost universal criticism the government was forced to drop a number of ideological proposals and to improve the performance tests for funds,” Dean said of the banished proposal, “but sadly it stopped short of protecting workers from losing their savings by being stuck in a dud super fund.”
After the federal government’s landmark decision to allow Australians financially damaged by the pandemic to dip into their super accounts, a limited expansion of the super guarantee in the latest federal budget, and Liberal MP Tim Wilson’s push to let homebuyers tap into their retirement funds to climb the property ladder, the new changes are just the latest development in what has been a massive year for the system.
Expect even more focus on the industry when the superannuation guarantee rate climbs 0.5% to 10% on July 1.