Employees who move jobs will have their superannuation paid into their existing account rather than their new employer’s default fund under new government rules that come into effect from November 1, 2021.
This means that when onboarding new employees, SMEs must verify whether the employee already has a super account. Many Australian workers are unknowingly paying more than one set of superannuation fees due to having multiple accounts, and new laws are being implemented to address this problem.
According to the rules, new employees who do not actively choose a different super fund when they change jobs will have their super deposited into their current account (stapled fund).
Previously, anyone who changed jobs without specifying a super fund was automatically placed into their new employer’s chosen MySuper fund.
What does it mean for SMEs
The new rules will make it difficult for small businesses to hire new employees without checking to see if they have a super account. The policy changes would create “super staple funds” to prevent Australian workers from opening multiple super accounts.
Hence, companies will now be required to check whether a new employee has a super account by contacting the Australian Taxation Office (ATO).
Business owners will continue to use the standard super choice form, offering employees the choice of picking an existing super fund or the employer’s default fund. If a new recruit does not choose a fund, businesses must request their current super account information from the ATO. Previously, employers could nominate a default fund on behalf of their staff.
Furthermore, according to an MYOB survey of more than 520 SME owners and operators, many respondents were not equipped to implement the new requirements, with 60% stating they use paper forms to capture Tax File Number (TFN) and superannuation information.
According to MYOB’s General Manager for Financial Services, Andrew Baines, three in ten SMEs onboard a new employee at least once a month. Survey respondents estimate that super may take an extra 12.7 hours in compliance time every month.
“Our data demonstrate 64% of small business owners will handle Your Future Your Super themselves and just 17% say they plan to appoint an accountant or bookkeeper, so it’s critical SMEs read up on their obligations ahead of the incoming deadline,” Mr Baines said.
“We know small business owners are resource and time poor. However, if they don’t take the time to understand their obligations and put processes in place, they risk time wasted and possible penalties and costs of non-compliance.”
Set but don’t forget
While this is a positive outcome for Australians already in high performing funds, the Australian Institute of Superannuation Trustees (AIST) believes that members of underperforming funds may be significantly worse off than otherwise as new employees who do not nominate a fund will be stapled to their existing fund, even if it is a persistently poor performer.
According to AIST’s analysis using APRA performance data and the ASIC calculator, being tied to a persistently underperforming fund rather than a high performing fund across a working life might result in an average salary employee retiring with $309,000 less.
A person in the high-performing fund would have a nest egg worth roughly $717,000 by the age of 67, compared to $408,000 if they stayed in the underperforming fund.
“While new employees without an existing super fund would be defaulted into their employer’s MySuper product, this safety net has been removed for employees in existing funds,” said AIST CEO Eva Scheerlinck.
“The new stapling rules don’t stop anyone from changing their super fund at any time; the reality is that millions of Australians’ set and forget’ their super, especially if they are years away from retirement,” Ms Scheerlinck said.
“We are very concerned that the new stapling rules will negatively impact disengaged or vulnerable Australians who may not realise they are in a persistently underperforming fund and remain stapled to that fund for life.
“This isn’t a handful of people – it could be several million workers. We don’t want them to get the fright of their lives when they retire and find their balance is much lower than it could have been.”
Are Employees aware?
Over 80% of Australians are unaware of the changes to super, according to Industry Super Australia (ISA). “The low-level of community awareness of today’s super changes are concerning as they have the potential to significantly impact workers’ retirement savings,” Industry Super Australia (ISA) analysis shows, the ISA said.
“Being caught in an underperforming fund could cost workers up to $230,000. Millions of workers will be ‘stapled’ to their current super fund, which means unless they choose otherwise, the super fund they have now will stick with them from job-to-job.”
Only 20% of 1,120 respondents in a UMR survey were aware of the changes or what would happen if they didn’t choose a fund. Another 42% had a vague idea that super was changing but didn’t know what the reforms were, and 38% had no idea there were any changes at all.
“Most people don’t know that government changes to super laws will see them stuck to their current fund, which could leave many stapled to a dud that hasn’t passed the government’s performance test,” said ISA CEO Bernie Dean.
“Being stuck to a dud fund could punch a huge hole in a person’s nest egg, and that is going to limit how much they enjoy life in retirement – people should make sure they are with a good fund.”
“Given the risks to so many people’s livelihoods, the government needs to tighten up protections to make sure people are only stapled to the best funds that have passed the performance tests.”
Daniel Cohen, Co-Founder of Flare, said that the new compliance considerations that come with Your Future, Your Super present SMEs with an opportunity to review their entire employee onboarding process.
“For businesses that aren’t set up with digital onboarding and super selection, stapled fund lookups will cost not only time and money but also open potential for errors and cybersecurity breaches – and give rise to penalties for non-compliance with the new rules,” Mr Cohen said.
MYOB has collaborated with Sydney-based fintech Flare to give businesses a streamlined solution for Your Future, Your Super compliance requirements.
Flare’s super selection platform enables employees to make an active fund selection when onboarding, ensuring employees are engaged with their super and avoiding the need for employers to undertake stapled fund lookups.
Every employee can quickly transfer a pre-existing superannuation account from any fund or switch to a fund that is more suited to their needs.
In Australia, the sole purpose of superannuation is to provide payments to its members upon retirement (or attainment of a certain age) or to beneficiaries if a member dies.
As per data from the Australian Prudential Regulation Authority (APRA) for the June 2021 quarter, superannuation assets totaled $3.3 trillion at the end of the quarter. This was a 14.7 per cent increase in the value of total superannuation assets for the year ending June 2021 due to strong investment performance and positive contributions growth.
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