What you need to know about major superannuation changes
There are major changes coming to Australia’s $2.9 trillion retirement kitty, and they’re going to impact superannuation balances. Here’s what you need to know.
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The nation’s giant $2.9 trillion retirement kitty is again under the spotlight as experts delve into the future of the superannuation system.
Submissions to the Federal Government’s Retirement Income Review closed this month and a report to the Government is due to be handed down in June.
Superannuation rules have been constantly massaged, particularly over the past decade, leaving many people either confused or disengaged.
In recent weeks there’s been more suggestions to tinker with super, including rapidly raising the compulsory super guarantee rate to 15 per cent by 2025, introducing compulsory super on maternity leave payments and allowing couples to have joint super accounts.
Here’s the state of super right now and why you need to pay close attention to your hard-earned savings pot.
1. RISE OF THE SG RATE
The compulsory super rate is set to rise on July 1 next year to 10 per cent – the first increase since 2014.
It will then rise by 0.5 per cent every year until it stops at 12 per cent in 2025, with the aim of further fattening super balances.
The Association of Superannuation Funds of Australia’s chief executive officer, Dr Martin Fahy, said the rise to 12 per cent could mean a person has “$75,000 to $100,000 extra in retirement over 40 years”.
“That's going to make a big difference to someone’s retirement outcome; if you are a couple and lucky enough to both be working then that’s going to make a big impact,” he said.
“It means we have more people who are self-funded in retirement and the aged pension can be kept for people who need it.”
2. IMPACT ON YOUR PAY
Dr Fahy said the increases to the SG for most people would not impact their regular take-home pay.
“For most people who get paid SG, if you are on $85,000 plus SG your employer is going to pay the SG (on top of your salary),” he said.
“But remember there’s already two million people out there who get 12 per cent or more - our academics, our public servants and our public officials.”
There has been much talk about fast-tracking the SG to 15 per cent, including by the union group representing workers – the ACTU – and Victorian Labor Premier Daniel Andrews.
Both made submissions to the Retirement Income Review arguing this.
3. FEES
You will need a long piece of paper to jot down all the pesky fees super members can get charged by their fund.
The most common fees are weekly administration fees and investment fees, and there are also advice, switching and exit fees.
One of the nation’s largest super funds, AustralianSuper, recently came under fire for rolling out a new variable fee of up to 0.04 per year of members’ account balances.
This results in people with $50,000 in their account being charged an additional $20 per year.
Hostplus group executive of membership experience Paul Watson said fees remained “very confusing, very competitive and very important” for Australians to understand.
“Fees are important as is returns, but it’s the combination of those two that is the real number for people to focus on,” he said.
“There are usually fixed weekly administration fees and, in many cases, asset-based fees, a percentage-based fee on the balance you have, and a number of funds have surcharges and add-on administration fees of all sorts of descriptions.”
Mr Watson said Australians should pull out their latest super statement or log into their account to understand the fees and charges they are paying. Otherwise they should contact their fund directly.
Dr Fahy said the super system had been subject to regulatory change and the long-term trend for fees had been down, despite some funds pushing up fees in recent times.
“The system is continually subject to regulatory change – we are trying to invest in technology,” he said.
However, some fees had to be “rebalanced”.
“Pushing fees down is one part of the equation,” Dr Fahy said. “You also need to get returns.”
4. PUTTING MEMBERS’ INTEREST FIRST
From April 1 this year the Federal Government’s Putting Members’ Interests First (PMIF) legislation will kick in.
The main changes include:
• Members with insurance cover and a balance less than $6000 at November 1, 2019, must tell the fund before April 1 if they want to keep their insurance cover.
• From April 1, members under the age of 25 who join a fund or who have a balance less than $6000 must opt-in to get insurance cover.
One of the biggest issues that younger Australians have is the lack of engagement with their retirement savings.
Late last year, the Australian Prudential and Regulation Authority rolled out a new ratings system known as the MySuper product heatmap.
It compares default products alongside each other to help people compare apples with apples.
5. CONSOLIDATION
Many Australians have multiple super accounts, resulting in them paying more in fees and insurance.
Consolidating accounts can be done by logging into your MyGov account and linking it to the ATO’s online services so you can view your super accounts under the super tab.
Intrust Super chief executive officer Brendan O’Farrell said people with multiple accounts should roll them into one immediately.
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“Save on unnecessary fees and insurance premiums,” he said.
“Any savings would be a great way of increasing your net financial outcomes in a more efficient manner, with no impact on your back pocket.”