Australian superannuation changes: what do they mean for you?

On Thursday, the Senate passed a trio of superannuation bills that the financial services minister, Jane Hume, has described as the biggest reforms since compulsory super was introduced in 1992.

From easier comparison of funds, blocking underperforming funds from gaining new members, and “stapling” workers to an account that follows them into a new job – the reforms will have a big impact on consumers.

So how will workers’ retirement savings be affected?

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What is ‘stapling’?

From 1 November, when an employee starts a new job but does not nominate a super fund to receive contributions, their employer is required to make contributions to their existing super fund, if they have one.

In this sense, the employee is “stapled” to the fund, which follows them from job to job. The object of this reform is to reduce the number of people with duplicate accounts, which hurt super balances as fees eat away at retirement savings held in separate accounts.

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In effect, stapling changes the default fund from one nominated by an employer or a workplace agreement to the fund an employee already has.

However, consumers can always choose which fund contributions are paid into, meaning they can ditch their existing fund in favour of a new one.

What are the concerns about stapling?

Industry funds are concerned that “stapling” will mean a person who starts off in one industry will stay with a super fund that isn’t the most appropriate for a future job, for example, because it lacks appropriate insurance cover. They are also concerned that workers will be stapled to underperforming funds.

Independent senator Rex Patrick moved amendments to address these concerns, including by exempting dangerous occupations from the stapling provisions but the amendments were rejected.

How will I choose a fund?

From 1 July, workers will be able to compare super funds on the new interactive online YourSuper tool.

The tool will list MySuper funds, ranked by fees and investment returns, and show a member’s current super accounts, with a prompt to consolidate accounts if they have more than one.

What about underperforming funds?

The government will require most superannuation products to meet an annual performance test. Those that fail will be required to inform members and persistently underperforming products will be prevented from taking on new members.

Members will be notified by 1 October if their fund fails this test.

Labor and the crossbench are concerned not all funds will face the underperformance test, with industry funds subjected to higher scrutiny at first.

Hume told the Senate the underperformance test will apply to 90% of funds at first, but the government intends to extend it to retail funds in future.

Members’ best financial interests

The Your Future Your Super reforms clarify that trustees must act in the best financial interests of members and provide better information regarding how they manage and spend members’ money.

However, the government removed a controversial power that would enable the minister to ban certain types of investments after backlash from the crossbench, as well as Nationals MP Barnaby Joyce and former Liberal now independent MP Craig Kelly.

What is the benefit to consumers?

The government estimates that together the measures will save Australians $17.9bn over 10 years.

A person’s share of that estimated benefit is highly dependent on their individual circumstances but in general young people, those likely to switch jobs multiple times, and those who compare funds to make an active choice, stand to benefit most.

What do the other two bills do?

The Self Managed Superannuation Funds bill increases the maximum number of allowable members in self-managed superannuation funds and small Apra funds from four to six from 1 July 2021.

The More Flexible Superannuation bill will allow people aged 65 and 66 to pay extra into their super above the annual non-concessional contributions cap by “bringing forward” the cap from later years without passing the work test.

Are there other ways to boost my super savings?

After a deal with One Nation, the government amended one bill to allow people to make additional contributions to their superannuation to make up for amounts they withdrew under the Covid-19 early release scheme.

From 2021-22, people who accessed up to $20,000 of their superannuation will be able to re-contribute these amounts without penalty.

Another amendment will mean that people can contribute more than $25,000 per year into their super account without paying the excess concessional contributions charge of 3%. High-income earners will benefit most from this change.

One Nation leader, Pauline Hanson, told the Senate people should be able to make such extra contributions “without penalty” because they had already paid tax on the income.