Most Australians have money in superannuation these days, as the compulsory Superannuation Guarantee (SG) has been around since the mid 90s. Despite this, many Australians do not actively manage their superannuation or choose a fund for their employer to contribute to. In the past, when employees did not nominate a fund, the employer forwarded contributions to a ‘default fund’ often chosen by the employer. This meant that the fund objectives may not have suited the employee or it was not managed to account for the employee’s personnel circumstances. In addition, some default funds charged fees that were considered excessive or charged for services that members rarely used. To ensure members who are inexperienced or disengaged are not disadvantaged, new rules for default funds have been introduced.
To replace existing default funds, MySuper funds offering low-cost accumulation superannuation options, were introduced from 1 July 2013. They do not include ‘defined benefit’ funds. From 1 July 2014 where an employee does not nominate a superannuation fund for their SG contributions, their employer will need to send the contributions to a MySuper account.
MySuper accounts have relatively low fees, have restrictions on the fees that can be charged and must offer a minimum level of insurance. They also have a basic set of product features that enable consumers to compare funds more easily and avoid paying for features they do not need or use. A superannuation provider can offer a MySuper fund subject to it meeting the required standards and it being approved by the Australian Prudential Regulatory Authority (APRA).
MySuper accounts can be managed using either a ‘Single Diversified Investment’ strategy or a ‘Lifecycle Investment’ strategy. The Single Diversified Investment strategy invests the funds across a mix of assets – including growth-style assets (such as shares and property) as well as defensive assets (such as cash and fixed interest) – with the aim to provide a mix of steady income and growth.
The Lifecycle investment strategy takes into consideration the age and life stages of the member and adjusts the asset allocation accordingly. For example, a fund may allocate around 80 per cent of the investment to growth-style assets for members in their 20s and 30s with a view to achieve strong returns. Generally, these members have time to ride the ups and downs of the markets over the long term. However, a member nearing retirement may need to access funds in the shorter term; therefore a fund may allocate a smaller percentage to growth-style assets to limit exposure to market volatility.
For those who have money in an existing default fund and do not nominate a fund of their choice, their fund will be transferred to a MySuper product by 1 July 2017. Apart from meeting the Superannuation Guarantee obligations, employers must continue to offer employees a choice of fund and ensure that new default funds, if required, are APRA-approved MySuper products. A list of approved MySuper products can be found at www.apra.gov.au. For information on SG employer obligations, visit www.business.gov.au.
Craig Hall has worked in the financial services industry for approximately 25 years, including 11 years of providing independent financial information to consumers.
Please note that the information in this article does not constitute or imply financial advice. It is recommended that you seek professional financial advice and/or seek clarification from any relevant government department or financial services provider before making financial decisions.