The government has released details on proposed changes to super announced as a part of the 2020-21 Federal Budget. The changes are aimed at reducing unnecessary fees by ensuring super is paid to a single default account for employees, increasing transparency of super products via the introduction of a rankings website, conducting annual performance tests for various super products to tackle fund under-performance, and ensuring trustees act in the best financial interest of their members. The proposals are currently in consultation stage and are not yet law.
More super changes are on the way with the release of draft legislation to implement super reforms announced in the 2020-21 Budget including single default account, bests financial interests duty, and tackling fund under-performance. The reforms are designed to ensure that the super system deliver better outcomes for members.
Single default account
Under the current rules, where an employee starts a new job and does not choose a super fund to receive their contributions into, the employer may make the contributions into a chosen default fund which must be a complying fund and offer a MySuper product. While this allows employers to comply with choice of fund requirements, it has the unintended consequence of creating multiple super accounts for some employees.
This particularly affects those employees who change jobs often or are casuals. The multiple accounts usually lead to a reduction in retirement savings due to unnecessary duplicate fees and insurance premiums.
Under the proposed rules, employers will be required to make contributions on behalf of employees to the employee’s existing “stapled” fund in certain circumstances, including where the employee has not chosen a fund. It will apply to employees who started their employment on or after 1 July 2021.
Employers will be able to apply to the Commissioner to identify whether their employee has a stapled fund. Where an employee has no stapled fund, the employer can continue to make contributions for the employee under the current arrangements.
Best financial interests duty
Currently, trustees of registrable super entities, directors of the corporate trustee of a registrable super entity, and trustees of SMSFs must perform their duties and exercise their powers in the best interests of the beneficiaries. For trustees of registrable super entities and directors of the corporate trustee of a registrable super entity, contraventions are subject to a civil penalty, and where the contravention involves dishonesty or an intention to deceive or defraud, a criminal offence applies.
Contraventions of covenants for SMSF trustees are not civil penalty provisions, but trustees that are found to have breached the duty may face a number of other consequences including notice of non-compliance, rectification or education directors, or disqualification.
The proposed new rules state that trustees of registrable super entities, directors of the corporate trustee of a registrable super entity, and trustees of SMSFs must perform their duties and exercise their powers in the best financial interests of the beneficiaries, which reverses the evidential burden of proof. It may also prohibit certain payments, or prohibit certain payments unless certain conditions are met, regardless of whether the payment is considered to be in the best financial interests of beneficiaries.
Tackling fund under-performance
Under the reforms, the government has proposed that APRA conduct an annual performance test for MySuper products, and other products specified in regulations. Trustees of the super entities will be required to give notice to members when a product fails the test. In addition, where a product has failed the performance test in 2 consecutive years, the trustee will be prohibited from accepting new beneficiaries into that product.It is envisaged that APRA may be able to lift the prohibition if circumstances specified in the regulations are satisfied.
To allow taxpayers to make more informed decisions and increase transparency, APRA will also be able to rank various super products according to specified metrics including fee levels and investment returns. The results of which will be published on an interactive website by the ATO. These reforms will ensure under-performing super products are held to account.
Would you like to know more?
Contact us today if you would like to find out more about how these upcoming super changes will affect you. Remember, these and many other tax and super changes are coming in 2021 and beyond, we can help you stay one step ahead.