Your Future, Your Super Legislative Changes
The Treasury Laws Amendment (Your Future, Your Super) Bill 2021 was introduced into the House of Representatives on 17 February 2021 to implement some of the measures announced in the 2020–2021 Federal Budget. It also incorporates the Productivity Commission’s report Superannuation: Assessing Efficiency and Competitiveness.
Treasurer Josh Frydenberg states that the Bill will save $17.9 billion over 10 years by holding underperforming funds to account and strengthening protections around the retirement savings. There are three Schedules to the Bill.
Single default accounts
Schedule 1 to the Bill amends the Superannuation Guarantee (Administration) Act 1992 (SGAA) to limit the creation of multiple superannuation accounts for employees who do not choose a superannuation fund when they start a new job. It applies in relation to an employee’s employment where that employment starts on or after 1 July 2021.
Currently, if an employee does not choose a fund, their employer may comply with the “choice of fund” rules by making contributions on behalf of the employee into the employer’s chosen default fund. However, this means that changing jobs can give rise to multiple accounts. Unintended multiple accounts were identified in the Productivity Commission’s final report as a structural flaw in the system that erodes members’ balances through unnecessary fees and insurance. The same issues were identified through the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Under the amendments, an employer can comply with the choice of fund rules by making contributions to the existing “stapled” fund of an employee who:
- started their employment on or after 1 July 2021;
- has a stapled fund; and
- has not chosen a fund to receive superannuation contributions.
Additionally, if an employee has a stapled fund and started their employment on or after 1 July 2021, the employer cannot comply with the choice of fund rules relating to contributions made to:
- the default fund chosen by the employer; or
- a fund specified under a workplace determination or an enterprise agreement.
Employers can continue to make contributions of this kind in compliance with the choice of fund rules if the employee does not already have a stapled fund. Similarly, contributions to these funds could be covered by another of the existing choice of fund rules (eg contributions to a fund specified in a workplace determination would comply with the choice of fund rules in relation to an employee who selected that fund in exercising choice).
A fund is the stapled fund for an employee at a particular time if the requirements prescribed by the regulations are met in relation to the fund at that time. These will cover:
- basic requirements that must be satisfied for a fund to be a stapled fund, including the requirement that the fund is an existing fund of the employee;
- tie-breaker rules for selecting a single fund where an employee has multiple existing funds; and
- when a fund ceases to be the stapled fund for an employee.
For employees starting employment on or after 1 July 2021, an employer cannot comply with the choice of fund rule for contributions made to the employer’s chosen default fund unless:
- the employer has requested that the ATO identify whether the employee has a stapled fund; and
- the ATO has notified the employer that there is no stapled fund for the employee.
Addressing underperformance in superannuation
Schedule 2 amends the Superannuation Industry (Supervision) Act 1993 (SIS Act) to require the Australian Prudential Regulation Authority (APRA) to conduct an annual performance test for MySuper products and other products to be specified in regulations. A trustee providing such products will be required to give notice to its beneficiaries who hold a product that has failed the performance test. Where a product fails the performance test in two consecutive years, the trustee is prohibited from accepting new beneficiaries into that product. APRA may lift the prohibition if circumstances specified in the regulations are satisfied.
The amendments made by Sch 2 apply in relation to MySuper products on and after 1 July 2021 and apply in relation to other products specified in the regulations on and after 1 July 2022.
Specifically, the Bill inserts a new Pt 6A into the SIS Act, which will provide that:
- APRA must conduct an annual performance test, each financial year, on “Part 6A products”;
- APRA must notify trustees of the superannuation products of the results of the annual performance test;
- trustees of superannuation products that fail the annual performance test must notify beneficiaries who hold the product that it has failed the annual performance test; and
- trustees of superannuation products that fail the annual performance test in two consecutive years are prohibited from accepting new beneficiaries into the superannuation product, unless APRA lifts the prohibition (if circumstances specified in the regulations are satisfied).
The Schedule inserts a definition of “Part 6A product”; that is, a MySuper product or a class of beneficial interest in a regulated superannuation fund, if that class is identified by regulations. For example, this could include “trustee directed products”, where the trustee has control over the design and implementation of the investment strategy.
Best financial interests duty
Schedule 3 contains a number of important changes, which apply from 1 July 2021. It amends the SIS Act to:
- require each trustee of a registrable superannuation entity and each trustee of a self managed superannuation fund (SMSF) to perform the trustee’s duties and exercise the trustee’s powers in the best financial interests of the beneficiaries;
- require each director of the corporate trustee of a registrable superannuation entity to perform the director’s duties and exercise the director’s powers in the best financial interests of the beneficiaries;
- allow regulations to be made that prescribe additional requirements on trustees and directors of trustee companies of registrable superannuation entities where failure to comply with these additional requirements would be a contravention of the best financial interests duty;
- allow regulations to be made to specify that certain payments made by trustees of registrable superannuation entities are prohibited, or prohibited unless certain conditions are met (regardless of whether the payment is considered by a trustee to be in the best financial interests of the beneficiaries);
- reverse the evidential burden of proof for the best financial interests duty so that the onus is on the trustee of a registrable superannuation entity. The reverse onus does not apply to additional best financial interest duty requirements prescribed by regulations; and
- allow contraventions of record keeping obligations specified in regulations to be subject to a strict liability offence to provide regulators with an additional option to respond to compliance issues relating to record-keeping requirements.
Schedule 3 also amends the Corporations Act 2001 to remove an exemption from disclosing information about certain investments under the “portfolio holdings disclosure” rules.
Important: Clients should not act solely on the basis of the material contained here. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We, therefore, recommend that our formal advice be sought before acting in any of the areas.