The Government has announced the “Your Future, Your Super” package to improve the superannuation system and has confirmed a number of previously announced measures to apply from 1 July 2021.
Superannuation accounts will be ‘stapled’ to an employee when they change jobs
The Government has announced that, from 1 July 2021, they will implement a proposal to ‘staple’ an existing superannuation account to an individual as they move between jobs. The purpose of this measure is to reduce duplication of super accounts for individuals when they change jobs and do not nominate their existing fund with their new employer (or otherwise do not consolidate their super if a new account is created for them).
This is a welcomed measure which reflects a proposal recently made by the Productivity Commission. Pitcher Partners expects that the changes will improve the employee onboarding process for both employees and employers, and that future enhancements to payroll software will further simplify administrative processes on commencement of employment.
Underperforming funds will be prohibited from accepting new members
The Government has announced they will conduct benchmarking tests on superannuation funds and prohibit funds that underperform over two consecutive years from accepting new members until they cease underperforming. While the measure will take effect from 1 July 2021, it is not clear which year will be the first year subject to the new benchmarking test.
While this measure is welcomed, it is unclear how the Government will ensure the underlying fund data is reliable, as this is an issue which currently acts as a significant barrier to making simple comparisons of the performance of funds.
Members will have access to a new interactive tool to compare superannuation funds
The Government has announced that individuals will have access to a new interactive online YourSuper comparison tool to compare superannuation funds from 1 July 2021. It is expected that employees who change jobs will also be able to select a superannuation fund from within the YourSuper portal.
This is a welcomed measure which would again depend on the integrity of the underlying data used for the comparison tool being reliable and comparable across superannuation funds. We expect the measure would also simplify the onboarding process for employers as new employees should be able to select a superannuation fund themselves from their YourSuper portal.
Small fund membership increased from four to six members
The Government restated an intention to increase the maximum number of fund members that can participate in a self-managed superannuation fund (SMSF) and a small APRA fund to six members (up from four). This measure was originally announced in the 2018-19 Budget and amending legislation is currently before the Senate with a start date from Royal Assent.
An increase in permitted member numbers to six would be a welcome change that should provide more opportunities for families to pool wealth in a common super fund structure for investment and access investment opportunities that would not otherwise be available. It may also make it easier for families to hold particular assets in a super fund structure and transition these to the next generation.
However, we note that a decision to include children in the one family super fund may not always be the best approach as all fund members have an equal say in investment and other fund management decisions regardless of the size of their super balance. This can result in issues where members at different stages of life may wish to pursue different investment strategies.
Minimum pension reduction
The Government also confirmed the 50% minimum pension drawdown reduction for the 2020-21 income year to help preserve the capital supporting a fund member’s pension account.
Any individual with an account based pension, allocated pension or market linked pension is eligible to reduce their minimum pension for the 2020-21 income year. This change is intended to allow retirees to avoid selling assets in a loss position in order to satisfy the minimum drawdown requirements.
The table below sets out the reduced minimum drawdown requirements for the 2020-21 income year.
|
Age on 1 July 2020 (or commencement of pension if first year of pension) |
Normal minimum drawdown percentage |
Reduced minimum drawdown percentage for the 2019-20 and 2020-21 income years |
| Under 65 | 4% | 2% |
| 65 – 74 | 5% | 2.5% |
| 75 – 79 | 6% | 3% |
| 80 – 84 | 7% | 3.5% |
| 85 – 89 | 9% | 4.5% |
| 90 – 94 | 11% | 5.5% |
| 95 or more | 14% | 7% |
