Superannuation rule changes will leave some stuck to bad nest eggs

If your super nest egg sits in a bad fund, it could be stuck there for decades as new rules aim to stop multiple accounts.

Australians who ignore superannuation when switching jobs risk being stuck with a bad super fund for the rest of their working life.

New government rules from November 1 will staple people to their existing super fund even when they change employers, rather than the current system where different employers and industries provide different funds.

The move aims to prevent people from unintentionally having multiple super accounts charging multiple fees, but will leave some stapled to a poor performer.

Most employees will still be able to choose their super fund if they wish, although history has shown that many don’t bother. If they stay stuck to a high-fee fund that charges more than 1 per cent in annual fees or has weak investment returns, the impact over decades can be hundreds of thousands of dollars of missed money.

Industry Super Australia’s Bernie Dean says people often ignore super until their mid-40s

Industry Super Australia CEO Bernie Dean said many super fund members were currently “sitting unwittingly in non-performing funds”.

“If you leave people to their owns devices they don’t engage with their super until their mid-40s,” he said.

The November rule change is part of a reform package that includes a new comparison tool for MySuper funds, and annual performance testing that recently failed 13 MySuper funds held by 1.1 million Australians. This testing will be expanded in 2022 and funds that continually fail will be closed to new members.

Mr Dean said Industry Super Australia had detected increased levels of engagement with super during the pandemic but it was “hard for consumers to easily grapple with the idea of super and the power of compounding interest”.

Super funds with low fees and good returns multiply members’ money as each year’s investment gains compound on top of previous years’ gains.

“And all of a sudden the smaller amounts contributed by your employer in your early years have been supercharged,” Mr Dean said.

Statewide Super’s general manager of advice and distribution, Lisa Palmer, said the new stapling measures were generally positive and would prevent erosion of people’s super balances by unnecessary duplication of fees or services.

“I definitely think stapling makes it more important for individuals to check they aren’t being stapled to a dud,” she said.

Statewide Super’s Lisa Palmer says there are free tools to calculate projected retirement balances. Picture: Andrew Beveridge

“Until the annual performance tests for super start to weed out underperforming funds, it is possible that you’ll be stapled to a fund with higher-than-average fees, poor returns, or even both.”

Ms Palmer said younger people tended to treat super as a “future worry” because it didn’t deliver tangible value to their current needs.

“There are a number of publicly available tools to compare funds or to calculate your projected balance at retirement to make it much easier for you to make sure you’re super is on track,” she said.

Ms Palmer said people could benefit from the rule change by:

• Knowing where they were stapled and checking their current fund.

• Searching for lost super using the ATO’s free tool or their existing fund’s services.

• Finding out what support or advice was offered by their current super fund.