In brief 3 min read
The exposure draft legislation released yesterday for a 'single default account' aims to limit 'the creation of multiple superannuation accounts for employees who do not choose a superannuation fund when they start a new job'.
Under the proposed amendments, the default position, on commencement of employment, will change. You will no longer be defaulted into your new employer's default fund. Instead, your new employer will contribute to your existing fund, unless you choose another fund (which may be your employer's default fund). However, if you are new to the workforce (and so don't have an existing fund), and do not exercise choice, you will, in that case, be defaulted into your employer's default fund.
The exposure draft legislation proposes amendments to the choice of fund rules in the Superannuation Guarantee (Administration) Act.
Under the amendments, an employer will satisfy the choice of fund rules by contributing to an employee's 'stapled fund' if the employee:
- starts employment on or after 1 July 2021;
- has a stapled fund; and
- has not exercised choice of fund.
In that situation, the employer will no longer be able to satisfy the choice of fund rules by contributing to:
- their default fund; or
- a fund specified in a workplace determination or an enterprise agreement.
However, if the employee does not exercise choice of fund, and does not have a stapled fund, then contributing to the employer's default fund will meet the rules.
A fund will be a 'stapled fund' for an employee if requirements set out in regulations are met. Draft regulations have yet to be released. However, the exposure draft EM says the regulations will:
- require the existing fund, of which the employee is a member, to be able to accept contributions; and
- include 'tie-breaker rules' (based on recent activity and account balances), to deal with a situation where the employee has multiple existing funds.
An employer will find out whether an employee has a stapled fund by asking the ATO. They will not be able to rely on any other information, including information provided directly by the employee. The ATO will establish and maintain a 'digital service' to receive and respond to requests from employers.
The amendments will apply in relation to situations where employment starts on or after 1 July 2021. Arrangements for existing employees will not be affected.
The measure implements recommendations by the Productivity Commission and the Royal Commission. However, there continues to be no recognition of the fact that employers routinely negotiate administration fee discounts for their default fund or that those discounts cease to apply when an employed member ceases to be employed.
Joining your new employer's default fund and transferring your earlier account (now subject to undiscounted fees) to that fund, can very often be the sensible thing to do, particularly if you intend (or hope) to keep your new job for a reasonable period. There continues to be no recognition of the fact that, in the absence of addressing the reality of how employers negotiate fee discounts (and how the MySuper rules inform that practice), this measure will result, in many cases, in retirement savings being subject to higher fees. An alternative approach would be to 'staple' an employee's earlier balance to their new account. Obviously, that approach would cause buy/sell spread to be incurred with each change of employment – and the associated impact would be exacerbated by frequent job changes. But it is easy to imagine that that approach may well result in lower fees where job changes are infrequent, which at least raises the question whether this measure is only about 'unnecessary fees and insurance premiums', or also about … something else.