Superannuation changes for 2021: What to expect

A raft of superannuation changes are set to come into effect in 2021. Here’s an overview, including a key takeaway for consumers looking to get the most out of their savings in retirement.

Several changes to superannuation were announced in the October 2020 Federal Budget, when the government unveiled its Your Future, Your Super package.

Treasurer Josh Frydenberg said the measures would make it easier for employees to take their super fund with them when changing jobs, “name and shame” underperforming funds and demand funds give more information to the public about their investment decisions.

We’ve rounded up the main changes coming for super fund members in 2021, as you consider your financial goals for the rest of the year.

1. More super due to be paid from your employer

The Super Guarantee (SG) rate has now increased from 9.5% to 10%, effective 1 July, 2021.

The SG rate determines the amount of money employers have to contribute to an employee’s super account, as a percentage of their wage. All other things being equal, a higher SG means greater savings at retirement, as we’ve calculated before.

Industry Super Australia has estimated an extra $233 a year will flow into the super average worker’s super account due to the change.

The rate had previously been frozen at 9.5% since 2014, despite having been originally scheduled to reach the 12% mark by 1 July 2019.

A recent review presented to the Government into Australia’s retirement income system argued that increases in the super guarantee rate tend to lead to lower wages growth and adversely affect living standards in working life, and that there may be alternative ways to improve Australians’ retirement outcomes.

Critics of the idea of leaving the SG on hold include the Federal Opposition, which has argued that wages growth has not improved in recent years despite the SG rate being kept at 9.5% for longer than originally legislated.

While some government backbenchers had called for the SG rate to remain on hold for longer, the May 2021 Budget made no changes to the currently legislated increases, meaning the 10% rate applies from 1 July, 2021.

2. Your super will follow you when you change jobs

Changes taking place from 1 November, 2021 would see workers automatically keep their super fund when they change jobs, ‘stapling’ the super account to you by default. The government argues this change would stop the creation of multiple super accounts and increase super balances.

As the system currently stands, most employees in Australia can choose which super fund they want their retirement savings to be paid into, but many end up going with a super fund that is chosen by their employer – these are known as ‘default super funds‘ and include MySuper funds (basic super products with low fees).

Employees who want to keep their old super fund when starting a new job generally have to fill out a form to advise their new employer of this decision.

Industry super representatives have argued the move to staple funds to employees could risk seeing some people stuck with poor-performing funds as they change jobs.

Canstar finance expert Steve Mickenbecker said a benefit of stapling is it is designed to eliminate duplicated fees for super members, but it’s only good for consumers if they are in a strongly-performing super fund in the first place.

“If stapling means that consumers stay in an underperforming fund, they are going to be a whole lot worse off than they might have otherwise been,” Mr Mickenbecker said.

“The duplication of fees has been one of the stimuli for people to actually get in and do something about their super, explore it and compare. If you remove that stimulus, what will encourage people to go in and compare how their fund is performing? It could mean that they’re in an underperforming fund for life.”

What are the new super steps for employers when you change jobs?

Under the stapling changes, employers would be required to undertake the following steps when hiring a new employee:

1. An employer would have to find out from the Australian Taxation Office (ATO) if their new employee has an existing super fund. They would then be required to make payments to that account if the employee does not notify them otherwise.
2. Alternatively, a new employee can notify their employer of their preferred fund (using the Standard Choice Form).
3. If the new employee doesn’t have an account, and does not let their new employer know which fund they have chosen, only then would the employer be allowed to create, on the new employee’s behalf, an account with its nominated default superannuation fund.

3. Greater transparency about how your retirement savings are invested

Another part of the 2021 super reforms includes a requirement for super fund administrators to provide more details about their investment decisions and how they were in the best financial interests of members.

This means that prior to Annual Members’ Meetings, super fund trustees would be required to provide key information about how they manage and invest money.

4. Naming and shaming super fund underperformance

In addition to increased transparency requirements, superannuation products now face an annual performance test under the government’s reforms, the results of which are public on the government’s new YourSuper tool. Funds that fail two tests consecutively would be blocked from accepting new members.

The move is designed to bolster the obligation super fund trustees have to act in the best interests of their members, requiring funds to disclose how they are spending members’ money.

The government’s YourSuper tool, launched on 1 July on the Australian Taxation Office’s website, ranks MySuper products by fees and investment returns, and also shows consumers where their current super account sits. People will be prompted to consolidate their super if they have more than one account. From September, the tool is also set to explicitly label low-quality funds as “underperforming”.

The testing regime is set to begin with MySuper products from July 2021, and expand to all super products from July 2022.

Key takeaway for consumers when it comes to super in 2021

While there are several changes here for super fund members to absorb, Mr Mickenbecker said there was one key point for consumers to remember.

“The key takeaway is that, in spite of and in addition to any of these reforms, consumers have to take responsibility for choosing a fund that works for them,” he said.

“That means being with a fund that delivers strong investment returns, after fees are deducted, and also finding a life insurance option that’s right for you, if you decide cover through super suits your needs.”

The following articles from Canstar could help with that:

• How to choose a super fund
• Top performing super funds revealed
• Where to find low fee super funds
• Pros and cons of life insurance through super

This story was originally published on 7 January, 2021 and has been updated.