Retirement
The ‘terrible’ unintended consequences of superannuation reforms
Members will be tied to an underperforming fund, creating ‘terrible’ retirement outcomes under the current stapling arrangements in the Your Future, Your Super legislation.
The ‘terrible’ unintended consequences of superannuation reforms
Members will be tied to an underperforming fund, creating ‘terrible’ retirement outcomes under the current stapling arrangements in the Your Future, Your Super legislation.
During an AIST media conference, AI groups chief policy adviser Peter Burn explained how changes to superannuation that are designed to protect members, such as stapling, will likely hurt their retirement income.
Under the government’s Your Future, Your Super reforms, from July, members’ contributions will be ‘stapled’ to a single account – effectively, superannuation for life.
While in support of the idea of removing multiple funds, Mr Burn noted that stapling achieved this purpose but at a greater cost to members.
“What that means [is] that people will face the risk of being initially defaulted into an underperforming account and staying with that throughout their working life,” Mr Burn said.
The policy officer cited the Productivity Commission, which found that 14 per cent of funds underperform, with members naturally weeding out poorer funds through creating multiple accounts throughout their working lives.
“The effect of this process is that without weeding out underperforming accounts is that after your third job, you have less than 0.5 per cent chance of having all your money in a low-performing fund,” Mr Burn explained.
“But the downside of the present proposal is that 14 per cent of people remain in a low-performing fund.”
He opined that the 0.5 per cent of people who currently have all their money in an underperforming fund will expand to 14 per cent, if the member is stapled to a default account.
“So that is a terrible outcome for those people. They end up low performance, low investment returns, high fees and they are stuck with that until retirement,” Mr Burn continued.
Despite facing its critics, the Minister for Superannuation Jane Hume has been vocal in her support of the changes, highlighting the importance of stapling, which avoids creating duplicate accounts, leaving members as much as $98,000 better off in retirement.
Ms Hume also highlighted addressing fees for younger members, which are unnecessarily reducing balances.
“Putting members’ interest bill prevented members, particularly young members, from paying for automatic insurance that is unnecessary.
“Often, these excessive premiums eroded the balances of young people that took years and years of contributions to finally increase their balance, which is not an inspiring entree into the world of compulsory super saving,” she concluded.
RELATED ARTICLES
About the author
About the author
Superannuation
Election policies could reshape Australia's superannuation landscape, expert warns
Competing superannuation policies from Australia's major political parties could have significant implications for investors and retirees, according to a financial expert. Read more
Superannuation
Industry leaders weigh in on concessional super tax as Budget confirms $55bn investment
Changes to the taxation of superannuation earnings and contributions have drawn mixed responses from financial and payroll sector leaders, as the Federal Budget confirms over $55 billion in ...Read more
Superannuation
Call for indexation on super tax cap as $3m threshold draws criticism
A senior executive in the superannuation technology sector has criticised the Federal Government for failing to index the proposed $3 million superannuation tax cap, arguing the measure will unfairly ...Read more
Superannuation
Rest members back calls for fairer superannuation rules ahead of Federal Budget
Rest has called on the Federal Government to implement superannuation reforms aimed at improving fairness across the system, after member survey results showed strong support for a range of proposed ...Read more
Superannuation
Rest welcomes progress on ‘Payday Super’ reform
Rest, one of Australia’s largest profit-to-member superannuation funds, has welcomed the Australian Government’s release of draft ‘Payday Super’ legislation, which aims to align Superannuation ...Read more
Superannuation
SuperAPI and Humanforce partner to improve superannuation compliance for one million Australians
Superannuation engagement platform SuperAPI has partnered with human capital management provider Humanforce to streamline payroll and superannuation contributions for more than one million Australian ...Read more
Superannuation
Rest super fund reports 11.19 per cent return for 2024
Rest superannuation fund delivered an 11.19 per cent return in its MySuper Growth investment option for calendar year 2024, marking two consecutive years of positive returns. Read more
Superannuation
Actuaries propose three-tier superannuation tax reform
The Actuaries Institute has outlined major reforms to Australia's $4.1 trillion superannuation system, proposing uniform tax rates and new levies on high retirement withdrawals. Read more
Superannuation
Election policies could reshape Australia's superannuation landscape, expert warns
Competing superannuation policies from Australia's major political parties could have significant implications for investors and retirees, according to a financial expert. Read more
Superannuation
Industry leaders weigh in on concessional super tax as Budget confirms $55bn investment
Changes to the taxation of superannuation earnings and contributions have drawn mixed responses from financial and payroll sector leaders, as the Federal Budget confirms over $55 billion in ...Read more
Superannuation
Call for indexation on super tax cap as $3m threshold draws criticism
A senior executive in the superannuation technology sector has criticised the Federal Government for failing to index the proposed $3 million superannuation tax cap, arguing the measure will unfairly ...Read more
Superannuation
Rest members back calls for fairer superannuation rules ahead of Federal Budget
Rest has called on the Federal Government to implement superannuation reforms aimed at improving fairness across the system, after member survey results showed strong support for a range of proposed ...Read more
Superannuation
Rest welcomes progress on ‘Payday Super’ reform
Rest, one of Australia’s largest profit-to-member superannuation funds, has welcomed the Australian Government’s release of draft ‘Payday Super’ legislation, which aims to align Superannuation ...Read more
Superannuation
SuperAPI and Humanforce partner to improve superannuation compliance for one million Australians
Superannuation engagement platform SuperAPI has partnered with human capital management provider Humanforce to streamline payroll and superannuation contributions for more than one million Australian ...Read more
Superannuation
Rest super fund reports 11.19 per cent return for 2024
Rest superannuation fund delivered an 11.19 per cent return in its MySuper Growth investment option for calendar year 2024, marking two consecutive years of positive returns. Read more
Superannuation
Actuaries propose three-tier superannuation tax reform
The Actuaries Institute has outlined major reforms to Australia's $4.1 trillion superannuation system, proposing uniform tax rates and new levies on high retirement withdrawals. Read more
