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We have summarised the key points from the 2020-2021 budget, that we believe will have the most impact on our clients with regards to your superannuation.
Please keep in mind that all budget measures are proposals and will require the passage of legislation to become effective.
Pleasingly, the Government committed to their election promise that there will be no adverse tax changes to the superannuation system. In addition, for the first time in a number of years, there were no measures specifically relating to SMSFs in this year’s Budget (although some measures have been deferred).
The Government, however, did announce a package of superannuation reforms to address APRA (industry and retail) superannuation fees and poor performances. The key part of this is a new form of ‘default superannuation’ where a superannuation account will follow an individual (super stapling) when they change jobs, eliminating the need for a new superannuation account to be created every time an individual changes job. The reforms will not only reduce the number of duplicate accounts held by employees as a result of changes in employment, but also prevent new members joining an underperforming fund. These reforms will save Australians an estimated $17.9 billion over 10 years.
When a person starts a new job and does not nominate a super fund, employers will be required to contribute to the employee’s existing super account, rather than the employer’s default super fund. This means that your existing super will follow you when you change jobs.
Under this measure, the existing super account will be ‘stapled’ to the member so that you keep your current super fund when you change jobs. The aim of this measure is to improve member outcomes by reducing unintended multiple super accounts that erode member balances through unnecessary fees and insurance premiums.
This measure implements Recommendation 3.5 of the Hayne Royal Commission.
Employers will be able to obtain the new employee’s existing super fund details from the ATO’s online services. A second phase will be introduced from 1 July 2022 where the ATO will enable payroll systems to obtain employee superannuation details to eliminate the need for manual entry.
It is important to note that the opportunity to nominate a chosen fund is still available under this reform.
Where a new employee does not have an existing superannuation account and does not nominate a superannuation fund, the employer will still pay the employee’s superannuation into the employer’s default superannuation fund.
A new, interactive, online YourSuper comparison tool, to be developed by the ATO, will make it easier for members to choose their super fund. The online tool will:
This is designed to make it easier for you to compare the fees and performance of super funds across the market and create more competition across the super industry.
By 1 July 2021, APRA will conduct annual benchmarking tests on the net investment performance of MySuper products. If a fund is deemed to be underperforming, it will need to inform its members of its underperformance by 1 October 2021. At this time, members must also be provided with information about the YourSuper comparison tool, which will identify any underperforming funds.
Products that have underperformed over two consecutive annual tests will be prohibited from receiving new members until a further annual test that shows they are no longer underperforming.
By 1 July 2022, annual performance tests will be extended to other superannuation products.
This may lead to consolidation of the number of super funds in the industry as members rollover to a super fund with better performance. Hopefully this will not lead to the situation we see in the Life Insurance industry where consolidation has arguably gone too far, leading to a lack of choice and competition. Having a simple to use comparison tool will streamline what is currently a very difficult area to compare.
The Government will ensure superannuation trustees are more accountable and transparent as to how they manage the retirement savings of members.
By 1 July 2021:
While Section 52(2) (c) of the Superannuation Industry Supervision Act already requires super trustees to perform their duties in the best interest of their members, the new duty is to act in the best financial interests of members. This is in line with the Hayne Royal Commission. This measure is aimed at Industry and Retail Funds(large APRA funds) and will not impact on SMSFs.
In the 2018-19 Federal Budget, the government proposed to increase the maximum number of allowable members in self -managed super funds and small APRA funds from four to six commencing from 1 July 2019. This measure is now proposed to commence from the date the enabling legislation receives Royal Assent.
The Treasury Laws Amendment (Self Managed Superannuation Funds) Bill 2020, was introduced into Parliament on 02 September 2020 and remains before the senate without opposition. Therefore, it is just a matter of time before you will be able to have up to 6 members in a SMSF. This will allow great family wealth creation and succession and we are keen to see this legislation passed.
In the 2019-20 Federal Budget, the government proposed the budget measure Superannuation — reducing red tape for superannuation funds (exempt current pension income changes). This measure aimed to simplify the process of claiming exempt current pension income in certain circumstances by allowing trustees to choose to use the proportionate method rather than the segregated method. In the 2020-21 budget, the start date has been deferred for another 12 months to 1 July 2021.
The Government is deferring the commencement of the Retirement Income Covenant, announced in Budget 2018-19, from 1 July 2020 to 1 July 2022 to allow continued consultation and legislative drafting to take place. This will also allow finalisation of the measure to be informed by the Retirement Income Review. Existing covenants in the SIS Act include obligations to formulate, review regularly and give effect to investment, risk management and insurance strategies, but not a retirement income strategy. Introducing a retirement income covenant will require trustees to consider the retirement income needs and preferences of their members.
If you have any questions or concerns about the proposals from the Federal budget announcements, please contact your Ulton Advisor to discuss.
Want to learn more about the other announcements from the 2020 budget? We have broken the full budget down into 6 main categories for usability.
Sources:
https://www.servicesaustralia.gov.au/individuals/services/centrelink/pension-loans-scheme
Wealth Management Disclaimer
Our liability is limited by a scheme approved under Professional Standards Legislation, except where we provide financial services as an authorised representative of Ulton Wealth Services Pty Ltd (holder of Australian Financial Services License No. 497721).
This communication has been prepared on a general advice basis only. The information has not been prepared to take into account your specific objectives, needs and financial situation. The information may not be appropriate to your individuals needs and you should seek advice from your financial adviser before making any investment decisions. Sub Authorised Representative No.245052 of Ulton Wealth Management Pty Ltd. All Ulton Wealth Managers can provide financial services as Sub-Authorised Representatives of Ulton Wealth Management Pty Ltd. ABN 73 168 815 450 | Corporate Authorised Representative 460875 of Ulton Wealth Services Pty Ltd | ABN 86 614 308 628 | AFSL 497721.
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