The 2020 Federal Budget contains a simple but powerful change to help prevent duplicate super accounts. It means a great number of Australians will be better off in the future.
Until now, when you started your first job, you would join the super fund chosen by your employer – their default fund - unless you selected your own. Each time you changed your job, if you didn’t choose again, your new employer would put you in their default fund, adding another super account for you to manage. This meant some people could end up with as many super accounts as they had jobs on their CV! That’s multiple super funds deducting multiple fees and potentially insurance premiums as well.
This year’s Budget seeks to reverse that. When you change to a new job, your new employer must contribute to your existing super account, unless you request otherwise.
This means people will now have the same super fund as they move from job to job, and may benefit from the savings. Government projections of the fee and cost savings show one fund for life could mean many thousands of dollars more in retirement.
“No one is losing anything,” says Mercer’s Technical Advice Specialist, Anthony Williams. “But by reversing the choice of default from employer to employee, employees may be protected from having multiple funds and all the inefficiencies that entails.”
Everyone still has a choice of super fund and can choose to change their fund at any time, which is one of the reasons for another important initiative in the 2020 Federal Budget.
Understanding your super
The Government will be setting up a YourSuper website that will help members compare the performance of super funds, starting with the MySuper funds.
It’s difficult to compare funds, because funds invest differently. So the performance of each fund on the site will be measured against benchmarks determined by the superannuation regulator, the Australian Prudential Regulation Authority. The annual rating the fund receives will be an average of eight years’ performance.
If a fund underperforms for the year, it must write to its members to alert them. If it underperforms two years in a row, the fund will not be allowed to admit new members until its performance improves.
This is good news for members of funds with a history of good performance, like Virgin Money Super.
“The plan itself is good in principle,” says Anthony, “because there is a percentage of the population that is not engaged with their super and they need to be informed.”
The legislation to enact these changes is yet to be drafted, says Anthony, and some aspects may change.
The big benefit of the proposal is that it helps Australians take the power themselves and engage with their own super. Anthony says “Understanding your super and making sensible decisions is one of the biggest determinants of your financial future.”