Issue 778, 6 October 2020 Budget 2020/21 edition
In this issue:
- Overview
- Details of specific superannuation measures
Overview
This year’s Budget announces significant reforms to default superannuation accounts. The ‘Your Future, Your Super’ measures will be implemented over four years from 2020-21 and will staple superannuation members to an existing superannuation account. New entrants to the workforce will be able to pick a MySuper product from a new online YourSuper comparison tool, to be delivered by the ATO.
Superannuation funds will also be required to undergo annual benchmarking tests. These tests will be conducted by APRA on MySuper products from July 2021 and on some non-MySuper accumulation products from 1 July 2022. Where a product has failed two consecutive annual tests, the product will be prohibited from receiving new members until a further annual test shows the product is no longer underperforming.
The major measures with direct impact on superannuation include:
- Changes to default superannuation – ‘Your Future, Your Super’ measures
- APRA’s annual benchmarking tests for superannuation products
- Additional funding to address serious and organised crime in the tax and super systems.
The Government has also addressed the Budgetary impact of several previously announced measures, including:
- COVID-19 temporary early release to superannuation
- COVID-19 temporary reduction of superannuation minimum drawdown rates
- Deferred start date of the Retirement Income Covenant
- Facilitation of closure of eligible rollover funds (ERFs)
- Revised start dates for superannuation measures.
Due to the impacts of COVID-19, this year’s Budget lock-up was significantly shorter than usual. To ensure we are able to quickly bring you the most significant superannuation announcements, we have narrowed the scope of this year’s Budget edition to focus on superannuation-specific measures. If there are more general Budget measures that will be of interest to superannuation providers, we will bring you details as they emerge over coming days.
Details of specific superannuation measures
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Changes to default superannuation – ‘Your Future, Your Super’ measures
The Government will provide funding over four years from 2020-21 to implement a package of reforms to superannuation that it expects will see Australians save $17.9 billion over the next decade.
1.1 ‘Stapling’ for existing superannuation fund members
To prevent the creation of unwanted multiple accounts, the Government will ensure a superannuation member is ‘stapled’ to an existing superannuation account.
This measure implements Recommendation 3.5 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry’s (Royal Commission). Recommendation 3.5 stated that a person should only have one default account, and that machinery should be developed to ‘staple’ a person to a single default account (see ASFA Action issue 697).
1.2 New YourSuper comparison tool for new superannuation members
For those entering the workforce for the first time or wanting to review their superannuation, a new online YourSuper comparison tool will be built to empower members to compare and select a MySuper product.
The ATO will be developing systems so that new employees will be able to select a superannuation product from a table of MySuper products through the YourSuper portal.
1.3 Increased transparency and accountability of superannuation funds
The Government will legislate a stricter requirement for trustees to ensure that expenditure is motivated solely by the best financial interests of members and require superannuation funds to disclose how they are spending members’ money. Key information will need to be provided to members ahead of Annual Members’ Meetings.
This is to ensure superannuation trustee actions are consistent with members’ retirement savings being maximised.
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APRA’s annual benchmarking tests for superannuation products
APRA will conduct annual benchmarking tests on the net investment performance of:
- MySuper products from July 2021.
- Non-MySuper accumulation products where the decisions of the trustee determine member outcomes from 1 July 2022.
Products that have underperformed over two consecutive annual tests will be prohibited from receiving new members until a further annual test that shows they are no longer underperforming.
Superannuation funds which had products fail the benchmarking test(s) will be required to disclose their underperformance to members and give their members the option to move their money to a better performing fund.
Additional levies on regulated financial institutions will fund this initiative.
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Additional funding to address serious and organised crime
The Government will provide funding to the ATO to target serious and organised crime in the tax and superannuation system.
This extends the 2017-18 Budget measure ‘Additional funding for addressing serious and organised crime in the tax system’ by a further two years to 30 June 2023.
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COVID-19 temporary early release to superannuation
The Budget formally addresses the impacts of the COVID-19 early release of superannuation initiative.
The COVID-19 early release of superannuation initiative allowed individuals to access up to $10,000 of their superannuation in 2019-20 and up to a further $10,000 in 2020-21 to help support them during COVID-19 (see ASFA Action issues 742, 745 and 766 for background).
The application period for 2020-21 withdrawals under the initiative was recently extended from 24 September to 31 December 2020 as part of the Government’s July Economic and Fiscal Update (see ASFA Action issue 766). Tonight’s Budget did not make any further changes to the early release initiative.
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COVID-19 temporary reduction of superannuation minimum drawdown rates
The Budget papers formally address the impacts of the COVID-19 measure that temporarily reduced the superannuation minimum drawdown requirements (see ASFA Action issue 743). The measure is estimated to result in a small but unquantifiable decrease in receipts over the forward estimates period.
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Deferred start date of the Retirement Income Covenant
The Government has confirmed its deferral of the commencement of the Retirement Income Covenant, originally announced in Budget 2018-19, from 1 July 2020 to 1 July 2022. This is to allow continued consultation and legislative drafting to take place during COVID-19, and to allow the measure to be informed by the Retirement Income Review. The deferral was announced in July as part of the Economic and Fiscal Update (see ASFA Action issue 766).
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Facilitation of closure of eligible rollover funds (ERFs)
The Government has confirmed its previous announcement that it will amend the Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020 to:
- Defer by 12 months the start date of the measure that prevents superannuation funds transferring new amounts to ERFs
- Defer the date by which ERFs are required to transfer accounts below $6,000 to the ATO to 30 June 2021
- Defer the date by which ERFs are required to transfer remaining accounts to the ATO to 31 January 2022
- Allow all superannuation funds to voluntarily transfer amounts to the ATO in circumstances where the trustee believes it is in the best interests of that member, such as amounts that would otherwise have been transferred to an ERF.
The Government will also provide the ATO $4.7 million over four years to administer amounts transferred voluntarily.
These changes were previously announced in July as part of the Economic and Fiscal Update (see ASFA Action issue 766).
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Revised start dates for superannuation measures
The Budget papers confirm deferred start dates for the following measures:
- 2019-20 Budget measure to reduce red tape for superannuation fund (exempt current pension income changes) – revised from 1 July 2020 to 1 July 2021
- 2015-16 Budget measure allowing the ATO to pay lost and unclaimed superannuation amounts directly to New Zealand KiwiSaver accounts – revised from 1 July 2016 to six months after the date of Royal Assent of the enabling legislation
- 2018-19 Budget measure to remove capital gains discount at the trust level for MITs and AMITs – revised from 1 July 2020 to the income year commencing on or after three months after the date of Royal Assent of the enabling legislation
- 2018-19 Budget measure to increase the minimum number of allowable members in a SMSF – revised from 1 July 2019 to the date of Royal Assent of the enabling legislation.
These deferrals were announced in July as part of the Economic and Fiscal Update (see ASFA Action issue 766).
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
