With the impacts of COVID-19 continuing to cause havoc across the world, this year’s Federal Budget focused mainly on jobs and getting the economy going again. This left superannuation to take a back seat with the Government holding to their election promise that there would be no adverse tax changes to the superannuation system.
For the first time in several years there was a welcome respite for Self Managed Superannuation Funds (SMSFs) with no changes announced. However, the Government did announce a “Your Future, Your Super” package with the intent to reform superannuation so that it works harder for Australians
Commencing from 1 July 2021, the four measures in this package are:
Stapled superannuation accounts
To avoid the creation of new superannuation accounts whenever a person changes employment, their existing account will effectively be “stapled” to them. This will require employers to pay contributions to their current fund if they have one unless they select another fund. Currently, Australians are paying $450 million a year in unnecessary fees across 6 million multiple accounts so any moves to reduce this are beneficial.
A system will be developed to enable new employees to select a superannuation fund from a table of MySuper products via a portal. The YourSuper portal will provide a table of products ranked by fees and investments returns to assist with choice.
Increased benchmarking tests on APRA funds
The Australian Prudential Regulation Authority (APRA) will undertake benchmarking tests on the net investment performance of MySuper products. Underperforming products over two consecutive annual tests will be prohibited from accepting new members until they show they are no longer underperforming.
Strengthening obligations on trustees of large APRA funds
Trustees of large funds will be required to comply with a new duty to act in the best financial interests of members. They will need to demonstrate there was a reasonable basis that their actions were consistent with maximising member’s retirement savings.
The Government also confirmed its intention to proceed with the proposed increase to the superannuation guarantee rate from 9.5% to 10% from 1 July 2021.
In addition, there is to be no extension past the 2020/21 financial year to the minimum pension drawdown reduction or past 31 December 2020 to the COVID-19 early release of superannuation.
People’s superannuation is often “out-of-sight, out-of-mind” until they get closer to retirement so the Government’s intention to improve the system by putting scrutiny on performance and fees will hopefully provide long-term benefits. It is estimated that there are 3 million underperforming accounts managing over $100 billion of Australian’s retirement savings so this is an issue which needs to be rectified.
By not changing any fundamental rules or taxes there is some welcome stability in the system so confidence can continue to return. While this Budget may not seem to provide much for self-funded retirees, the focus on improving the economy will ideally lead to improved investment returns and income.
If you have any questions please speak to your usual Mazars adviser or contact our Superannuation specialists on:
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2020/2021 Federal Budget tax brief
The 2020-2021 Australian Federal Government budget brings enormous stimulus to promote recovery of an economy devastated by natural disasters and the global COVID-19 pandemic.