The Budget is making changes to your super: Here’s what they are
Most of the Federal Budget measures were about getting people into jobs and helping Aussies keep more of their money.
And while you might have heard all about the business and income tax cuts by now, you may have missed a little detail: a handful of changes to your superannuation.
It was wrapped up in a package called ‘Your Future, Your Super’, which is designed to help Aussies save $17.9 billion over the next decade.
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Here’s what they are – and what some industry experts thought about it.
Your super fund will follow you to your next job
Unnecessary superannuation fees cost Australians a lot – more than $300,000 by retirement, if you’re not careful. As a nation, we pay $30 billion a year in super fees.
These rack up through expensive administrative costs, insurance premiums, and other fees.
Aussies who aren’t conscious of their super fund may end up joining a new one every time they start a new job or change jobs.
To prevent this from happening, the Government has created a measure that ‘staples’ your superannuation fund to you, meaning it sticks with you even if you change jobs and you don’t unintentionally create a new one.
This also ticks off Recommendation 3.5 of the 76 recommendations from the Banking Royal Commission’s final report.
Bad super funds will be exposed
Poorly performing super funds will have less room to hide: funds will be required to meet a yet-to-be-introduced annual performance test.
And if they fail the test, the super fund will have to let members know they failed the test, and also give them the option of switching their money over to a better-performing fund.
Then, if they keep underperforming, they will be barred from admitting new members until their performance picks back up.
You can compare super funds more easily
Aussies may not be aware that there are better super funds available on the market that can lead to better performance and ultimately higher retirement savings.
In order to help Aussies find and compare super funds with their own more easily, the Government has made an online comparison tool called YourSuper that helps you compare different MySuper products.
There are already a number of superannuation comparison tools, such as Canstar, RateCity, Finder, SelectingSuper and SuperRatings.
Funds will have to be more transparent
The government will introduce legislation that will improve the accountability and transparency of super funds.
Superannuation trustees will have to make sure money is spent only in members’ best interests, and will have to reveal how members’ money is being spent.
What do the experts think?
While all the reforms sound good on paper, industry experts are cautious about the fine print of some of the proposals.
According to industry fund association Industry Super Australia (ISA), ‘stapling’ members to their funds isn’t the most effective way to prevent multiple accounts. Rather, members’ money should be ‘stapled’ to the member themselves, instead of the super fund.
“While it is pleasing the government is tackling multiple accounts, stapling workers to a single fund could leave them stuck in a dud fund for life, costing them hundreds of thousands of dollars at retirement,” he said.
“Stapling the money to a member would remove multiple accounts quicker and more effectively weed out underperformers.”
Martin Fahy, chief executive of the Association of Superannuation Funds, said the Budget measures were a “significant change to the architecture” of the national superannuation system and called for careful consideration.
“We don’t suffer from a shortage of good funds and we need to ensure that these measures don’t reduce competitive intensity or damage the nation building role of superannuation,” he said.
He added that the “lack of specificity” in the Budget papers made it “unclear how the changes will work in practice or what the implications will be for competition, efficiency and incumbents in the sector”.
“We need to avoid reducing the complexity of MySuper to a singularity without any reference to the nuance of member preferences and long-term fund performance.”
The government’s proposal to ask funds to confess to members it was underperforming was labelled “extraordinary” by Canstar finance expert Steve Mickenbecker.
“There are some consistently underperforming funds that are costing their members dearly and could result in those members having a lower standard of living in retirement,” he said.
“It is ‘naming and shaming’, but the funds have to name and shame themselves.”
It was “critical” that members are aware of when a fund is underperforming and take action before it was too late, he added.
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