Are you ‘stapled’ to a dud fund?

Federal Financial Services Minister Jane Hume described the Your Future, Your Super legislation as the biggest reform since compulsory super was introduced in 1992.

The four key elements of the new law (mostly effective from 1 July 2021) are:

  • A new Your Super comparison tool to compare data on My Super products.
  • From 1 November 2021, where new employees do not choose a super fund, employers have to check with the ATO to determine if the employee has an existing super account. If so, the employee will be ‘stapled’ to that fund and all future contributions will be paid into it.
  • A change to the duties of trustees of superannuation funds to act in the best financial interest of their members.
  • A new super fund underperformance assessment to be conducted by APRA and published on their website.

The purpose of the ‘stapling’ provision is to reduce the number of super accounts as the ATO estimates there are about 6 million multiple accounts held by 4.4 million Australians. Admin fees, investment management fees and insurance premiums on these extra accounts eat into account balances and can significantly reduce a member’s balance at retirement. It is a huge waste of money.

Prior to this reform, if a new employee did not nominate a preferred super fund, the employee would be placed in the employer’s default fund, which is usually named in an industrial award or agreement.

So, while the intent of the ‘stapling’ provisions is good, there will be some problems for those disengaged employees who are ‘stapled’ to a dud fund. The CEO of the Australian Institute of Superannuation Trustees, Eva Scheerlinck, has said: “We are very concerned that the new stapling rules will negatively impact disengaged or vulnerable Australians who may not realise they are in a persistently underperforming fund and remain stapled to that fund for life.”

The CEO of Industry Super Australia (ISA), Bernie Dean, agreed. “Being stuck to a dud fund could punch a huge hole in a person’s nest egg, and that is going to limit how much they enjoy life in retirement – people should make sure they are with a good fund,” he said. ISA estimated being stapled to an underperforming fund could cost an individual as much as $230,000 at retirement.

So what is a dud fund?

The Australian Prudential Regulation Authority is required to conduct an annual performance test and this year it has told members of 13 regulated funds that their returns have been at least 0.5% below the benchmark for its peers for at least the last five to seven years. If you have received advice that your fund is in this category, then it may be wise to look around and weigh your superannuation options.

‘Stapling’ also has implications for insurance cover as people who change jobs and move into more dangerous occupations such as building or even bartending may not be covered under their group cover at time of claim.

So the best option is engagement. Even if you are years away from retirement, it is important to be engaged with your super. Read your member statements, annual reports, your fund’s website, and information about super in the news. It’s your best defence against the set-and-forget mentality that is so common.

On behalf of the NGS Super Trustee, management, and staff, we would like to extend to you a very happy and safe holiday period. We’ll be back in 2022 and you can be sure we will be working in your best interests now and in the new year.

Bernard O’Connor
NGS Super
(Important information: The information in this article is general information only and does not take into account your objectives, financial situation or needs. Before making a financial decision, please assess the appropriateness of the information to your individual circumstances, read the Product Disclosure Statement for any product you may be thinking of acquiring and consider seeking personal advice. Past performance is not a reliable indicator of future performance. Any opinions are those of the author and do not necessarily reflect the view of NGS Super.)