Super news for November 2021

Cut-off age for bring-forward rule confirmed

The SMSF Association reports that it has received clarification from Treasury that the proposed extension of the non-concessional contribution bring-forward rule to people aged 67 to 74 will not have a phase-in period.

“Treasury has confirmed that the amendments, which are currently before parliament, simply move the current cut-off age for the bring-forward rule from needing to be under age 67 to needing to be under age 75 from 1 July 2022,” the association revealed on social media.

Under the bring-forward rule individuals can contribute up to $330,000 in a single year.

Poor performing super funds still have sticky membership

Only a small fraction of members in MySuper superannuation funds that failed the recent performance test have moved funds, according to the Australian Prudential Regulation Authority (APRA).

Thirteen funds out of the 76 assessed MySuper funds failed the performance test, which was released at the end of August. Those funds were then required to write letters to members to notify them. However, from the 1.1 million member accounts in products that failed, APRA says fewer than 68,000, or 7%, have since closed.

“The trustees of APRA-regulated superannuation funds have a legal duty to act in the best financial interests of their members, and APRA is working hard to ensure they fulfil that obligation,” APRA executive board member Margaret Cole said.

“That’s not a reason for members to sit back and avoid taking steps to act in their own best financial interests by ensuring they are in a high performing super product.”

APRA is urging more members to actively engage with their super. “Research shows that the difference in outcomes between a top product and an underperforming one can amount to hundreds of thousands of dollars over a working life,” Cole said.

SMSFs not beating the market over the longer term

The majority of SMSF portfolios fail to beat the market, according to a white paper from the Monash Business School’s Monash Centre for Financial Studies.

In the paper – Is there wisdom within the crowd? Evidence from the Australian Self-managed Super Funds – Dr Nga Pham, Dr Bei Cui and Dr Ummul Ruthbah analysed a sample of more than 40,000 SMSF portfolios from the SelfWealth database.

“Median annualised returns were indeed lower than those of the S&P/ASX200 and S&P/ASX300 over various timeframes ranging from one to eight years, and the gap widened for longer time horizons,” the paper concluded.

The authors found that fewer than half of the SMSFs they looked at managed to beat the market in financial year 2019–20, while less than a quarter beat it over the eight-year period analysed.

Results were analysed on a gross basis and did not take into account costs such as transaction costs, administrative costs and franking credits. Another finding the authors noted was that SMSF investors avoided much of the panic selling of March 2020.

“The analysis of the investment strategies of these self-managed super funds during the onset of the COVID pandemic was very interesting. We have seen no evidence of panic behaviour. What we have seen was a swift and huge decline in value of many portfolios but then a very fast recovery for most of them,” Pham told the Retirement Puzzle podcast from the Monash Centre for Financial Studies.

Superannuation portfolio holdings disclosure regulations finalised

Australians will have access to information about how super funds are investing their money following the finalisation of new regulations dealing with portfolio holdings disclosure by superannuation funds.

Under the requirements, superannuation funds must disclose information about the identity, value and weightings of their investments. Members will be able to see how much of their retirement savings are being invested by funds across a range of asset classes and derivatives, making it easier for members to compare products and identify the most suitable fund for them.

Reviews of the superannuation system have found that superannuation portfolio disclosure lacks transparency, does not meet global best practice and limits how much members can know about where their retirement savings are invested.

Under the regulations, super funds will be required to first report their holdings by 31 March 2022, with portfolio holdings disclosure to occur every six months thereafter.

The Association of Superannuation Funds of Australia (ASFA) said the regulations will achieve greater transparency for consumers whilst recognising the potential effect on investment outcomes.  “ASFA supports the objective of increased transparency of superannuation for consumers, however, we have long advocated that it was important that this be done in the best interests of fund members,” said ASFA CEO, Dr Martin Fahy. 

Super Consumers Australia Director Xavier O’Halloran said “Super funds will no longer be able to hide where they’re investing your money. The disclosure will help Australians see if their fund is investing in line with their values while delivering on their best financial interests. Increasingly we’re seeing funds badge their products as ethical and sustainable, but in some cases, fund members have no way of ‘looking under the hood’ to see if these claims match reality.”

New ID requirements now required for directors

Company directors now need to verify their identity following the introduction of new requirements designed to prevent the use of false and fraudulent director identities. 

Existing directors will need to apply for a director identification number by 30 November 2022 if they were appointed before 1 November 2021. New directors will have 28 days to apply if they were appointed between 1 November 2021 and 4 April 2022.

The requirements include directors of SMSF corporate trustees.

Directors can apply for a director ID on the Australian Business Registry Services online and login using the mGovID app. You must do it yourself and not have anyone act on your behalf.

Retiree living costs rise

Retirees are facing one of the biggest increases in their living costs in over a decade, according to the latest Association of Superannuation Funds of Australia (ASFA) Retirement Standard data.

Over the September quarter, the costs of living for retired couples aged around 65 who want to live comfortably rose by 0.9%, while costs for singles rose by 1%.

That was higher than the increase in the September quarter All Groups CPI of 0.8%.

“Australian retirees are now facing significant pressure on their budgets, given a range of unavoidable price hikes, including petrol and council rates,” ASFA deputy chief executive officer, Glen McCrea, said.

“It’s critical that future retirees are able to build sufficient retirement savings to ensure they can have dignity, health, vitality and connection in retirement.”

Increases in fuel, property rates, restaurant meals and takeaway and fast foods were behind the increase in overall retiree costs in the September quarter.

Advocacy group calls for fairer Pension Loans Scheme rate setting mechanism

Pension Boost has launched a petition on Change.org to lobby the Government to introduce a more fair and transparent rate setting mechanism on its Pension Loans Scheme (PLS). The PLS is similar to a reverse mortgage scheme, administered via Centrelink and the DVA, rather than a private provider.

Under the scheme, the government currently loans Australians of Age Pension age a non-taxable fortnightly payment, for which property is used as security.

A recipient’s combined loan and pension amount cannot be more than 1.5 times their maximum pension rate but pensioners can also choose to receive a smaller amount or opt for a fixed loan amount. Currently, an annual interest rate of 4.5% is charged.

Pension Boost, is a private commercial venture established by founder and chief executive officer, Paul Rogan, to help pensioners better understand how the PLS can boost their retirement income.

“In the end it doesn’t matter what I think the PLS rate should be,” Rogan says. “The more critical issue is that a fair and transparent PLS rate setting mechanism needs to be introduced to the PLS so that senior consumers can have greater confidence and trust in relation to the rate they will be charged, given that it compounds each fortnight, directly impacting the residual net equity in their property and their estate.”

You can view and sign the petition on Change.org.

Choice super fund fees high and performance lacklustre

Choice super products are generally more expensive and are more likely to underperform benchmarks than MySuper options, according to the Australian Prudential Regulation Authority’s (APRA) latest analysis of the funds.

APRA is set to release its first Choice Product Heatmap in late 2021 and is looking at Choice super products and super options that members have actively chosen to join. They are usually more complex and varied than MySuper products.

APRA’s initial research has found the median administration fees of choice products are approximately 40% higher than the median MySuper product, based on an account balance of $50,000.

Also, 15% of choice options, compared to 7% of MySuper options, underperformed a risk-adjusted peer-derived benchmark by more than 75 basis points. “The new Choice Product Heatmap will make clear which trustees have underperforming Choice products and where they need to lift their games. Trustees are expected to identify the reasons for their underperformance and take prompt action to address those issues,” APRA executive board member, Margaret Cole, said.

Minimum $450 monthly salary threshold for super to be removed

In a move welcomed by the super industry, legislation to remove the minimum $450 monthly salary threshold for compulsory employer contributions has been introduced to Parliament.

The legislation currently prevents more than 311,000 workers, who receive less than that amount a month, from receiving compulsory employer Super Guarantee (SG) contributions.

“This legislation recognises that every worker has a right to employer super contributions, no matter how much they earn or how many hours they work,” Australian Institute of Superannuation Trustees (AIST) chief executive officer, Eva Scheerlinck, said.

“There is absolutely no justification for this arbitrary earnings threshold on employer super contributions.”

The Association of Superannuation Funds of Australia (ASFA) said that it would go a long way to improving retirement outcomes for many people. “This is an important step towards providing adequate retirement savings for low-income earners, particularly for women and younger Australians, whose superannuation is adversely affected by the $450 threshold,” ASFA chief executive officer, Martin Fahy, said.

Employees lose $5 billion in unpaid super

Meanwhile, a report from Industry Superannuation Australia (ISA) estimates that employers are underpaying a total of $5 billion in super contributions to employees.

The report found that almost three million workers lose $1700 in super on average each year, which could make a $60,000 difference at retirement.

“While most employers do the right thing, those who do not cause significant harm to individual workers and, ultimately, to all taxpayers. They also gain an unfair business advantage over employers who do meet their obligations to pay super,” ISA said in the report.

ISA recommends that to combat this problem, employers be mandated to pay super into a workers account at the same time they pay wages.

“The ATO should be much more rigorous in applying the existing enforcement regime. The ATO should also publicise its enforcement action so that fear of detection and penalty acts as a real deterrent for employers looking to avoid paying super,” the ISA also added.

Australian pension system ranked in top 10 globally

Australia has slipped from fourth to sixth best place to retire out of 43 countries analysed in the latest Mercer CFA Institute Global Pension Index 2021 study.

Australia ranked sixth overall with an index score of 75. On the component subindexes, it scored a 75.7 on the sustainability subindex but only 67.4 on the adequacy subindex, which ranked it 18.

The report said the Australian system could be improved by moderating the assets test on the means-tested Age Pension to increase the net replacement rate of average income earners; introducing a requirement that part of a retirement benefit be taken as an income stream; and increasing the labour force participation rate at older ages as life expectancies rise.

But the Australian index value of 75 in 2021 was an increase from the 74.2 in 2020, due primarily to an increase in the household savings rate in the adequacy subindex.

Iceland is the best place to retire, according to the study, with an overall ranking of 84.2, followed by the Netherlands with 83.5 and Denmark with 82.

ASIC analysing trustee super switching during COVID

The Australian Securities and Investments Commission (ASIC) has been looking at personal investment switching by directors and senior executives of large super funds during the COVID-inspired market volatility in early 2020.

ASIC was concerned that fund executives were using price-sensitive valuation information for personal gain by switching investment options based on their knowledge of the timing of the revaluation of unlisted assets. The regulator looked at a sample of 23 trustees, which included trustees of industry and retail funds.

“We expected superannuation trustees to have robust conflict of interest policies that dealt adequately with investment switching, including by their directors and executives. What we found instead was often a clear failure to identify investment switching as a source of potential conflict, resulting in a lack of restrictive measures and oversight to adequately counter this risk,” ASIC Commissioner, Danielle Press, said.

“This is very concerning given the level of sophistication and governance required of trustees when managing millions of dollars in assets on behalf of fund members.”