1 November 2021 may be the perfect time to consider whether your current super fund is the best for you, as this is the date on which the ‘stapling’ provisions of the recently passed Your Future, Your Super (YFYS) legislation take effect.
What is ‘super stapling’?
Under the current pre 1 November 2021 ‘default’ superannuation system, where an employee commences employment with a new employer and does not choose a superannuation fund into which their super contributions will be paid, their contributions are paid to a default ‘My Super’ product selected by their employer.
This means that a person who changes jobs and does not exercise choice of fund will typically have more than one superannuation account.
However, under the ‘super stapling’ reforms, where a person moves jobs their existing superannuation account will be ‘stapled’ to them, meaning that their new employer must pay contributions into the ‘stapled fund’ unless the member chooses for their contributions to go to a different fund.
What is the aim of stapling?
The core aim of stapling is to prevent the proliferation of superannuation accounts by enabling a person’s existing account to follow them from job to job, instead of new ones being created automatically and members paying fees to multiple funds.
According to the Australian Government, stopping the creation of unintended multiple accounts will boost balances in super by about A$2.8 billion over the next 10 years.
It is important to note that you can still change super funds if you want to, but if you don’t make an active decision about your super you’re not penalised with additional fees and paperwork.
How does stapling work?
Under YFYS, the superannuation account into which your employer contributions are currently paid will be ‘stapled’ to you. If you change jobs your new employer will pay super contributions into your existing fund.
For many, this will be a good thing. At 30 June 2020, Australian Taxation Office (ATO) data showed that 26% of Australians had two or more super accounts, mostly accumulated through defaulting into different employer-nominated default funds as they changed jobs. This ultimately reduces your retirement savings through paying fees and costs to multiple super funds.
If you’re a new entrant to the workforce, YFYS will potentially mean the fund you join in your first job will become your fund over your entire working life.
Are existing employees affected?
No, the stapled fund rules only apply to new employees who commence work on or after 1 November 2021.
How does an employer work out if an employee has a stapled fund?
Employers will need to log into ATO online services and enter the relevant employee details to request information on the employee's stapled fund. An employer will need to have lodged either a Single Touch Payroll event or a Tax file number declaration for the employee to make the request (bulk requests can be made if you have over 100 new employees starting at once (eg this might be relevant where acquiring a new business)).
What if the employee already has multiple super accounts?
The good news is that neither the employer or employee has a role in determining which superannuation account is the employee’s stapled fund. The ATO is required to determine this, applying certain ‘tiebreaker’ rules set out in the legislation. Generally, the stapled fund will be the fund that the employee last received contributions into, but this will not always be the case. Importantly, employers must ensure they always check the ATO portal to determine which fund is the employee’s stapled fund and not rely on other information (such as the employee telling the employer which fund they think is their stapled fund).
Pros and cons of stapling
While the potential saving on fees and costs will be a positive outcome for many people, the possible downside is remaining a member of a fund that is not ideal for you. You may be stapled to a fund that:
- Is not cost competitive on fees and costs relative to performance
- Does not deliver solid long-term investment performance compared with other funds
- Provides insurance cover that is not appropriate for the occupation you are in and/or charges excessive premiums deducted from your super account, reducing your retirement savings.
Fees and investment performance are measures that are independent of your career progression, whether you work in an office or on the ground in heavy industry. However, under YFYS, you should be aware of how the insurance cover provided through your fund may be affected as your career progresses.
Review Your Superannuation
While stapling will mean that fewer super accounts are created, there is no guarantee that employees are getting the best outcomes from their super by staying with their existing fund.
Employees should regularly review their fund's investment returns (to make sure they are strong) and fees (to make sure they are competitive). A good time to review your super is when you change jobs and/or when you receive your annual statement from your existing fund.
Employers will be obligated to search for their new employees' existing fund. A new account can only be created with the employer's default fund once it is confirmed by the ATO that it cannot identify a stapled fund for the employee.
If you have any questions relating to the above, please contact Phillip Bures on 1300 795 515 or your principal adviser.
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser, Hillross Financial Services Limited and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Please contact us if you want more information. Prosperity Wealth Advisers Pty Ltd (ABN 32 141 396 376), is an Authorised Representative and Credit Representative of Hillross Financial Services Ltd, Australian Financial Services Licensee and Australian Credit Licensee.