Budgets always have a habit of springing surprises and the big one this year was a major reshaping of Australia’s $3 trillion superannuation industry.
Super has been in the news all year given the controversial but highly popular moves to allow emergency withdrawals due to the COVID-19 pandemic.
In the end about 2.87 million individuals have withdrawn $35.6 billion with potentially more to come but the Budget changes ensure super will remain in the news in the year to come.
There are a number of layers to the changes with the cynic able to interpret them as being targeted at attacking those pesky but very popular and successful industry funds which really annoy some of the Liberal backbenchers.
High fees and poor returns to be highlighted
Whatever your personal take, at least the changes will focus on reducing fees and improving returns – although attempting to limit funds to only focus on financial returns and not environmental and governance issues is a slap in the face for those industry funds that successfully stood up to Rio Tinto over the destruction of the 46,000-year-old caves at Juukan Gorge in the Pilbara.
From July 2021 all funds will need to take an annual performance test and those which fail to produce good returns for members will be publicly listed as an underperforming fund on a new online comparison tool, to be known as “YourSuper”.
Bad funds blocked from taking new members
Underperforming superannuation funds will be blocked from taking on new members if returns are not improved.
Funds will also be forced to publicly disclose poor returns on investments and required to prove they are acting in the best interests of Australians.
The test will initially apply to simplified “MySuper” funds with lower cost balanced investment options but will be extended to all other super products in 2022.
It has been calculated that the difference between the worst MySuper product and the best is up to $98,000 less for an average worker, so this change alone could help workers accrue an extra $10.7 billion over 10 years.
Super funds will also be subject to a new requirement ensuring they act in the best financial interest of their members in a bid to improve accountability and transparency – something that could lead to industry funds being forced to reveal contributions to unions.
Multiple funds problem to be tackled
The changes also try to put an end to the problem of workers having multiple super funds that suck out extra fees, with workers to be tied to their super fund so that employers pay into existing accounts each time someone gets a new job.
About 4.4 million people have 6 million accounts which means they pay $450 million in unnecessary fees.
The Government estimated there will be 2.1 million fewer accounts created over the next decade, saving $2.8 billion for workers, although workers can still switch super accounts if they like.
Treasurer Josh Frydenberg and Assistant Minister for Superannuation Jane Hume said in a joint statement that Australians are expected to pay $45 billion in superannuation fees annually by 2034.
“At $30 billion a year the superannuation fees Australians pay exceeds the cost of household gas and electricity bills combined.”
Mr Frydenberg said energy bills cost households $27 billion per year while water bills cost $12 billion a year.
Compulsory super payments are legislated to rise from 9.5% to 10% in July next year and up to 12 per cent by 2025.