Federal budget 2020: Shake-up for super under-performers

The federal government will block funds that underperform from receiving new members as part of sweeping reforms to super.

Golden Eggs. Making Money and Successful Investment. Generic superannuation nest eggs

The federal government will target duplicate superannuation accounts and block funds that underperform over two years from receiving new members as part of the latest round of sweeping reforms to the $3 trillion ­system.

The budget papers showed the government setting aside $159.6m over four years from 2020-21 to implement a package of super reforms it says will “improve outcomes” for fund members.

They include preventing the creation of multiple super accounts by stapling an account to an individual, so that it moves with them when they change jobs. The banking regulator will from July next year also conduct “benchmarking tests” on the net investment performance of MySuper products, with a view to stopping those that have underperformed over two years from receiving new members.

Treasurer Josh Frydenberg said the current super system was “letting too many Australians down” and that the package of reforms would benefit Australians by $17.9bn over the next decade.

“Poor-performing funds will have nowhere to hide and will be required to notify their members of their underperformance,” Mr Frydenberg said in his budget speech.

“To help more Australians make an informed choice about who will manage their retirement savings, the government will also establish an online comparison tool known as ‘YourSuper’.”

The government cited figures that Australians paid $30bn annually in super fees, exceeding the $27bn paid every year in energy bills or $12bn on water expenses.

The latest reforms will shake up the super sector and pile more pressure on funds to ensure they are not trailing their peers and benchmarks in investment performance. They may also prompt more funds to seek mergers.

The government stopped short of extending the COVID-19 early release super program past December 31, giving the industry some respite after it lobbied hard against such a move. The industry is also awaiting an official response to the Retirement Income Review, which covered the entire system including the efficiency of the age pension, compulsory super and savings rates.

The hit to employment by the pandemic has also stoked fierce debate about the legislated increase in the super guarantee to 12 per cent over the next five years. Some believe the slated rises in the rate should be postponed given the economy is enduring higher unemployment and its first recession in almost three decades.

The super reforms announced in the budget aim to stop duplicate accounts being held by employees. The budget papers said future technology enhancements would also enable payroll software developers to build systems that would simplify the process of selecting super funds. The Australian Taxation Office will develop systems so that new employees will be able to select a super product from a table of MySuper products.

The measures around underperforming funds are likely to cause a stir in the sector, as funds seek more information from the Australian Prudential Regulation Authority on its benchmarking tests. Non-MySuper accumulation products, where the decision of the trustee determines member outcomes, will be added by July 2022.

APRA has already released a measurement system for super funds referred to as its heatmap, but the assessment looks at a range of measures and the regulator has warned against it being used to benchmark performance.

The budget reforms — called the Your Future, Your Super package — also aim to drive better transparency and accountability of super funds, by “strengthening obligations” on trustees to ensure their actions are consistent with the best interest of members and their retirement savings.

The government didn’t use the budget to extend the early release super program past December 31.

Under the early release initiative — which was extended in July — until the year’s end individuals can apply to draw on two $10,000 tranches of their own super balances if they were “adversely financially affected” by the pandemic.

Treasury originally estimated $27bn would be sucked out of super funds by workers seeking early release payments due to the COVID-19 crisis, but an extension to the program saw that figure amended to $42bn.

The latest APRA data shows applications for almost $35bn had been received under the program as at September 27, while $33.8bn in payments had been made.

Ahead of the budget, Industry Super Australia on Tuesday said it was opposed to any third round of early release super payments, pointing to the “long-term costs” to individuals in retirement and the taxpayer given an increased reliance it could spur on the age pension.

The Master Builders Association was pushing for an extension of the early release super scheme to allow first home buyers to tap their retirement balances to help build or purchase a home.