Superannuation changes keep coming

When will the Government and the regulators leave superannuation alone I hear you ask? 

Not any time soon I suspect. It’s a cash cow for many, including the Government and many reforms are still in the pipeline.

That rather rhetorical question leads me to advise that the Government has now released what it says are final details of key design aspects of its so-called “Stronger Super” reforms covering MySuper, SuperStream, trustee governance and SMSF regulation.

The Stronger Super reforms were announced on December 16, 2010 in response to the 177 recommendations by the Super System Review Panel, chaired by Jeremy Cooper.

Once fully implemented the Assistant Treasurer believes the Stronger Super reforms could reduce fees paid by super fund members by up to 40% and deliver a 30-year-old worker on full-time average wages up to $40,000 more in retirement. Perhaps, but there are lots of variables and lots of ifs and buts in that sort of prediction.

The new key elements proposed by the Government for MySuper products from July 1, 2013 include:

• Standard fees for all members. MySuper products will have to be offered at a standard set of fees for all fund members. But funds will be able to offer discounted administration fees to employees of particular employers. Any discounted fee will be reported to APRA and published by the fund. Funds will be able to offer employers with more than 500 employees a MySuper product tailored to the needs of the particular workplace.
• Default fund transition. From October 1, 2013 employers will be required to make contributions for employees, who have not chosen their fund, to a fund offering a MySuper product. By July 1, 2017 funds will need to transfer existing default balances of members to a MySuper product.
• Default funds in awards. In order for a superannuation fund to be named as a default fund in a modern award it will have to offer a MySuper product.
• Investment strategy. A MySuper product will have a single, diversified investment strategy. MySuper trustees will be required to clearly articulate the targeted rate of return (over a rolling 10-year period) and level of risk.
• Lifecycle investment option. Trustees will be allowed to use a lifecycle investment option as the single investment strategy for their MySuper product.
• Authorisation of MySuper providers. Trustees will not be required to apply to APRA to hold a specific MySuper licence. Instead trustees will be required to apply to APRA to be authorised for each MySuper product they offer.
• Single brand for MySuper. Each fund will be limited to offering one brand of MySuper product but an exception will apply where there is a pre-existing and distinct MySuper or default product acquired by a fund through a merger or takeover. Funds will need to apply to APRA for approval to offer more than one brand of MySuper product.
• Fees. A member in a MySuper product can only be charged an administration fee; investment fee (including a performance-based fee); buy and sell spreads (limited to cost recovery); exit fee (cost recovery); and switching fee (cost recovery). Note that trustees will not be limited on the types of fees that can be charged in choice products.
• Performance-based fees. Trustees must include provisions for a reduced base fee that reflects the potential gains the investment manager receives from performance-based fees (taking into account any fee cap); measurement of performance on an after-tax and after-costs basis; an appropriate benchmark and hurdle for the asset class reflecting the risks; an appropriate testing period; and provisions for adjustments.
• Insurance. All APRA-regulated funds (ie MySuper and choice products) will be required to offer life and total and permanent disability (TPD) cover on an opt-out basis. Trustees will be required to allow members to opt out of life and TPD insurance within 90 days of the member joining a fund or on each anniversary of the member joining the fund.
• MySuper default insurance. A standard default level of life and TPD insurance will be required in MySuper products and members will be able to increase or decrease their insurance cover (if offered) without having to leave the MySuper product. However, it will be possible for the standard insurance cover to be replaced by a default insurance strategy tailored to meet the requirements of a particular employer.

New processes proposed to apply from January 2014 will see lost and inactive accounts with balances under $1,000 and in eligible rollover funds, automatically consolidated into the fund member’s current active account, unless the member opts out. In the latter half of 2014 the threshold for auto consolidation of lost and inactive accounts (two years without contributions or rollover) will be increased to at least $10,000 subject to a review by Treasury, Tax Office and APRA.

From July 1, 2013 employers will be required to forward contributions not accompanied by a tax file number (TFN) to a fund. If the fund is unable to obtain a TFN and other identifying details within a specified time frame it will be required to send the contributions to the Tax Office as unclaimed money. So employees should not underestimate the importance of quoting their TFN.

Currently the law only requires payslips to report an employee’s entitlements to superannuation, accrued during the pay period, even though the employer may not make the actual contribution until after the end of the quarter. The Government has been concerned that employees do not always know if their employer has failed to make contributions on their behalf.

So, concerning the reporting of employer superannuation contributions, from July 1, 2012 employers will be required to report on payslips an “expected payment on or before” date in addition to the current entitlement during the pay period. In many cases that will be the superannuation guarantee due date, or a due date under a workplace agreement or award.

This change is designed to provide up?to?date information to employees on when they can expect superannuation contributions and will allow them to follow up with their superannuation fund to confirm that payments have been made by the due date.

From July 1, 2013, subject to there being what the Government says are “no significant payroll system costs”, employers will be required to report on payslips actual contributions paid (rather than just accrued) and information about which fund the contributions are being paid into.

It must be said that, Government concern aside, these changes will add up to more compliance costs for employers.

From July 1, 2013 super funds will also be required to either issue six-monthly statements which show contributions made or report electronically to members on whether they have received or not received any contributions for that quarter.

Assistant Treasurer Bill Shorten said legislation to implement these measures will be introduced in several tranches over the coming months and in the first half of 2012.

Exposure draft legislation on the core elements of MySuper will be released in the next few weeks, Mr Shorten said.

As employers, SMEs will need to keep up to date with changes concerning superannuation.

It’s hardly the only (or even main) thing they have to think about, but it’s important and shouldn’t be ignored – and it’s not about to go away any time soon!

Terry Hayes is the senior tax writer at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions .

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