Changes to superannuation – how they affect your employer clients
By Graeme Hughes, Head of Corporate Super
With the current pace of Superannuation changes, it’s never been more important to stay on top of new regulations and what they mean to your employer clients. But as you know, that’s easier said than done. At IOOF, we’re committed to providing you with the support you need and, in light of this, we’ve put together the following for your information.
The corporate superannuation reforms can be broken up into three main segments:
- the establishment of MySuper – the new default fund for employer-sponsored super (and other super where members have not made active investment choices)
- the introduction of SuperStream which will mandate data, payment and contribution standards to comprehensively reform the super fund back office
- the more general reforms to super that cover both default fund super and choice-based super including disclosure, mandatory consolidation of accounts, benefit and insurance restrictions and greater duties and responsibilities on trustees.
MySuper
MySuper is a single diversified investment product that applies to all MySuper members across a super fund, providing low cost administration and default insurance cover. Any member who has their super contributions going into their employer plan default investment option will be classified as a MySuper member.
What is a MySuper product?
The MySuper legislation sets out very strict criteria for a MySuper product:
- It has a single investment strategy.
- Only one MySuper product is allowed per super fund. IOOF is therefore only able to have one MySuper offering across all our employer funds.
- MySuper products must provide the same features and benefits to all of its members. This means MySuper members must have the same investment strategy, same fees, same benefit rights and facilities and the same method of crediting earnings.
- Trustees must provide opt-out death and permanent disability insurance cover to all MySuper members at a minimum level. However, insurance can be provided above this base level through an employer plan.
What if someone chooses a particular super fund but then opts for the default investment strategy?
Even if an employee actively 'chooses' the super fund for contributions, they still must make an investment choice for those contributions, or the contributions must be paid to a MySuper product from 1 January 2014.
For example, if Helen works for ZXC Pty Ltd and has completed a choice of fund form, nominating the ZXC Corporate Super Plan as her chosen fund, then her employer will pay contributions to ZXC Corporate Super Plan. But unless Helen also nominates an investment strategy for her contributions, the trustee must allocate the contributions to the MySuper product attached to the plan from 1 January 2014.
What happens to account balances held in the employer plan’s default investment option?
Although all new default contributions must go into MySuper from 1 January 2014, existing accumulations can initially stay in the current default investment arrangement. However, these amounts (called accrued default amounts) will need to be transition to the MySuper product by 1 July 2017.
Also members who have 100 per cent of their accumulation invested in the employer plan’s latest default investment option4 will also have their accumulation transferred to MySuper by 2017, even if they have actively chosen this investment option. These members will have to opt out of the transition to MySuper in writing beforehand if they don’t want their investments moved to the new MySuper investment.
Case study
Helen is a member of the ABC Pty Ltd Corporate Super Plan and under the plan rules the trustee can change the default investment option for new members joining the plan. When Helen joined the plan in 2007, the default investment option was the XYZ Growth Fund. In 2010, the trustee changed the default investment option for new members to the IOOF Multi Series Balanced Fund.
As a pre-2010 member, Helen’s default contributions were being made into the XYZ Growth Fund. But in 2012 Helen made an investment choice in writing for 100 per cent of her cashflow (including contributions) and 100 per cent of her investments to be switched to IOOF Multi Series Balanced Fund.
Helen is not a MySuper member from 1 January 2014, because she has actively chosen where her contributions are to be invested. However, even though she has made an active investment choice, because 100 per cent of her account balance is invested in the IOOF Multi Series Balanced fund, which is the latest trustee default option, her account becomes an accumulated default amount. Therefore her account will be transferred to the MySuper product by 1 July 2017 unless she confirms in writing she wants the investment to remain with the IOOF Multi Series Balanced Fund.
What is the impact of MySuper on insurance?
MySuper members must be provided with opt-out death and disability cover at a minimum level. Many employees will already have insurance cover through their corporate super plan that is well in excess of the minimum level required and these arrangements can continue.
Some super members who will become MySuper members will receive minimum cover as a consequence of becoming a MySuper member. This will apply to MySuper members who don’t currently have cover or whose cover is under the minimum, including:
- those who were originally denied cover
- whose cover lapsed
- who opted out of cover but the trustee cannot access this election easily
- new MySuper members.
Who is exempt from the MySuper legislation?
Defined benefit members and pensions have been carved out of the MySuper requirements.
Employees covered under enterprise agreements and modern awards are technically deemed to have chosen their fund for choice of MySuper purposes. Therefore contributions can continue to be made to the existing default investment option after 1 January 2014 where a post 2009 enterprise agreement exists. However, when the enterprise agreement is renegotiated, contributions will need to be invested in a MySuper product.
Superannuation data and payment standards enabling services
Under the new SuperStream legislation employers will be required to meet the new data and payment standards. It affects not only how employers make superannuation contributions to funds but also what information is provided to the super fund so the payment can be processed.
Details have yet to be finalised, however, it is proposed that employers will be required to conduct superannuation transactions either via approved electronic fund transfer or via BPAY®.
The draft regulations propose an increase in the specific information employers will need to provide to super funds when making a contribution. This includes personal information about their employees such as full name, tax file number (if consent is provided), gender, date of birth, address, email and telephone number. Employers will also be required to use a unique identifier for all transactions so that it can be traced. This identifier will need to be included in the data reported by the employer to the super fund when a contribution is paid.
The legislation is intended to be effective from 1 July 2014 for large to medium size employers (employs 20 or more employees at that time). For small employers (employs fewer than 20 employees) the legislation will be effective 1 July 2015.
Other super reforms affecting corporate super
Employer contributions without tax file numbers
Under current proposals, contributions made where there is no tax file number (TFN) held will be treated as unclaimed moneys and forwarded to the ATO. The details remain unclear, however unclaimed moneys are likely to be the full account balance, not just the post 1 July 2013 contributions. It is expected the ATO will receive the first transfer around April 2014.
Employees over age 70
From 1 July 2013, there will be no upper age restriction for employers paying SG contributions for an employee. Historically SG obligations ceased in respect of employees once they reached 70 years of age.
Payslip reporting
Legislation was passed on 27 June 2012 requiring employers to provide prescribed information about superannuation contributions to employees. Unfortunately the regulations have not yet been finalised, however, we know that from 1 July 2013 employers will be required to report the actual super contributions made on behalf of an employee.
The purpose of the reporting is to provide an early warning to employees if superannuation entitlements aren't being paid.
Tax file number
Although it is not compulsory for people to provide their super fund with their Tax File Number (TFN ) new legislation will allow the ATO to give a person's TFN to their super fund if the person has quoted their TFN to another super fund.
Key dates
From 1 July 2013 |
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From 1 January 2014 |
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From 1 July 2014 |
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From 1 July 2015 |
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From 1 July 2016 to 1 July 2019 |
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1 July 2017 |
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Need more information?
Our IOOF relationship managers can help you or your employer clients understand the full gamut of these changes. So please contact us if you require any assistance.
4This is the default investment option available to new members and may be different to the particular member’s default option.
December 2012
