In our Superannuation Solutions Newsletter edition 8, we explained the changes to the superannuation system announced by the Federal Treasurer in the publication Your Future Your Super. The legislation to implement these changes has now been introduced into Federal Parliament as the Treasury Laws Amendment (Your Future, Your Super) Bill 2021. We take this opportunity to outline two important aspects of the draft legislation.
Stapled Superannuation Accounts New rules for “stapled” employee super accounts will affect employer contributions for employees who start their employment on or after 1 July 2021. Contributions for employees who started employment before 1 July 2021 will not be affected. The new rules will also apply to contributions made by the new employer where a person changes jobs on or after 1 July 2021.
Under the current super guarantee rules, employers are required to make minimum superannuation contributions on behalf of employees. Generally, employees are able to choose the super fund into which they wish these contributions be made. If no choice is made, the employer will usually contribute to a default super fund chosen by the employer, or into a fund nominated in an industrial agreement, which covers the employee’s work. As people change jobs they can end up with multiple low-balance accounts all charging fees and insurance premiums. The ATO has estimated that around 6 million multiple accounts are held by 4.4 million people, and over one third of multiple accounts are held by people aged 35 and under.
Under the new rules, the employer will be generally required to make contributions for employees who start their employment on or after 1 July 2021 according to the following hierarchy:
The ATO intends to set up an electronic channel for stapled fund enquiries and responses. The rules to be used by the ATO to determine the stapled fund of an employee are to be prescribed by regulation.
Where the ATO has notified the employer of a stapled fund for the employee but the fund has not accepted the contributions from the employer, contributions for the employee may eventually be made late to another fund, which may perhaps the employer’s default fund. There is a provision in the law to allow the ATO to reduce (possibly to nil) the individual super guarantee shortfall for an employee where this happens.
Some aspects of the draft legislation intended to clarify the best interests duty imposed on super trustees have provoked strong criticism from retail and industry funds.
Currently, individual trustees and directors of corporate trustees of all regulated super funds (including SMSFs) are required to exercise their powers in the best interests of members of the fund. In the case of industry and retail funds, the civil penalties for breaches can be substantial (up to 2,400 penalty units, or $532,800) and criminal penalties can apply where the contravention involves dishonesty or an intention to deceive or defraud.
The amending bill will change the law to specifically require trustees to act in the best financial interests of members. The Explanatory Memorandum accompanying the Bill explains that this will not preclude a fund from providing non-financial benefits to members, but the financial benefits expected to arise from expenditure or investments must be the paramount consideration. Also, the usual evidential burden will be reversed, so in the event of a dispute, the onus will be on the trustee to prove that it was acting in the best financial interests of members.
Controversially, the Bill allows the Treasurer to make regulations that contain additional requirements on trustees, and failure to comply with these additional requirements will be regarded as a contravention of the best interests duty. The Treasurer will also be allowed to make regulations that prohibit the making of certain payments, or prohibit the making of certain payments unless specified conditions are met. The Explanatory Memorandum justifies granting this power as “appropriate to ensure there is sufficient flexibility for the Government to respond quickly to evolving industry practices as needed”. It also asserts “consistent with standard practice, the Government will consult before making any regulations under this power”.
Industry funds in particular have been accused of spending members’ funds on items such as sponsoring sporting teams and advertising which might not be seen as being in the members’ best financial interests. It will be interesting to see what types of expenditure are judged by the Government to warrant explicit prohibition under this new power.
Please contact Alanah Boylon or your Nexia Edwards Marshall advisor if you need more detailed advice on any aspect of these changes.
The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall Adviser.