The Australian Institute of Superannuation Trustees (AIST) is urging all employees to take some time to ensure they’re happy with the performance of their super fund ahead of new rules that will ‘staple’ them to their existing super account.
Under the rules, which come into effect from 1 November, 2021, new employees who do not actively choose a different super fund when they change jobs will see their super paid into their existing account (stapled fund) rather than their employer’s default fund. While this is a good outcome for Australians already in high performing funds, members of persistently underperforming funds could be significantly worse off than otherwise.
Previously, anyone who changed jobs without nominating a super fund was automatically defaulted into their employer’s chosen MySuper fund, which on average, are highly performing. But from 1 November, new employees who do not nominate a fund will be ‘stapled’ to their existing fund instead, even if it is a persistently poor performer.
AIST CEO Eva Scheerlinck said while new employees without an existing super fund would be defaulted into their employer’s MySuper product, this safety net has gone for employees in existing funds.
‘While 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’s 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.”
AIST’s analysis using APRA performance data and the ASIC calculator shows being stapled to a persistently underperforming fund over a working life, instead of a high performing fund, could result in an average wage earner retiring with $309,000 less* at retirement. An individual in the high performing fund would have a nest egg at age 67 worth around $717,000 compared to $408,000 if they remained in an underperforming fund.
Members in MySuper products can now use the ATO consumer comparison tool to see how their fund is performing, but, as yet no such tool exists for the millions of Australians with
retirement savings in ‘non-MySuper’ products. This leaves millions of unsuspecting Australians at risk of a substandard retirement income.
AIST is calling on the Government and regulators to performance test all APRA regulated super products, ensure members can’t be stapled to an underperforming fund and introduce measures to wind up persistently underperforming funds, all of which are in line with the Productivity Commission recommendations.
*Based on APRA 7 year performance data for a high performing fund (9.44%) and a low performing fund (6.92%) and modelled with the ASIC superannuation calculator for a 28 year old earning $60,000 a year, retiring at 67 years old.
