Your Future, Your Super update June 2021

Treasury Laws Amendment (Your Future, Your Super) Bill 2021

On 17 June 2021, the Treasury Laws Amendment (Your Future, Your Super) Bill 2021 (the YFYS Bill) was passed in the Senate with several amendments and has now received royal assent, bringing effect to “Your Future, Your Super”. The YFYS Bill captured the primary superannuation reforms in the 2020 Federal Budget and included a number of material changes to the superannuation sector. These changes include the introduction of ‘stapled funds’, annual performance testing by APRA, a Best Financial Interests Duty and a YourSuper comparison tool. Federal Treasurer Josh Frydenberg described these changes as “the most significant reforms to superannuation since the introduction of compulsory superannuation in 1992”, with the Government estimating the measures will result in savings to members of $17.9 billion over the next decade. Please refer to the Parliament of Australia website for the YFYS Bill as passed by both Houses and the explanatory memorandum.

Single default fund (Stapled Fund)

As a result of the Royal Commission’s ‘stapling’ recommendation, the YFYS Bill introduced that an employee will take their existing superannuation account with them when they change employment, instead of being defaulted into an employer’s nominated fund, stopping the creation of multiple unintended accounts. Amendments to the YFYS Bill have delayed the originally proposed commencement date, meaning stapled funds will now apply to employees who begin employment on or after 1 November 2021. Notably, as a result of the new ‘choice of fund’ rules, an employer will now be compliant if the employee has not chosen a fund, and they make contributions to the employee’s stapled fund. Further, if an employee has a stapled fund, an employer is unable to satisfy the new ‘choice of fund’ rules by making contributions to an employer’s nominated fund or a fund identified in a workplace determination or an enterprise agreement. Employers now have the power to request the Commissioner of Taxation to disclose whether an employee has a stapled fund.

Addressing Underperformance in Superannuation

The YFYS Bill now requires APRA to undertake annual performance tests for MySuper products and superannuation products to be outlined in regulations, including ‘trustee-directed products’. In the event a superannuation product fails the performance test, the Trustee of the product will be required to provide notice of the failed test, to the beneficiaries holding the product. Trustees must comply with the notice requirements prescribed in the draft regulations. Further, failing an annual performance test in two consecutive years will result in a Trustee being prohibited from accepting new members into the superannuation product. However, APRA has the discretion to lift the ban if the Trustee meets the requirements outlined in the regulations. The YFYS Bill also introduces the ‘YourSuper’ comparison tool, which will enable the public to view fees and performance of superannuation products on a website. Superannuation products will be ranked on the website, with regulations to outline how these rankings will be formulated. Additionally, the ATO will be responsible for running the website, with APRA providing relevant information and data for the ATO to publish.

Best financial interest duty

The Superannuation Industry (Supervision) Act 1993 is amended to impose a new ‘best financial interests duty’ on trustees of a registrable superannuation entity (RSE) and trustees of a self-managed super fund (SMSF), to carry out their duties and powers in the best financial interests of the beneficiaries. The YFYS Bill also prescribes that each director of the corporate trustee of a RSE is required to carry out their director’s duties and powers in the best financial interests of the beneficiaries. Superannuation trustees will now need to consider whether their operational activities such as investment and expenditure decisions, are in the best financial interests of the beneficiaries. The revised explanatory memorandum provides a number of contextual examples for determining whether such decisions satisfy the new ‘best financial interest duty’, and can be found here.

The YFYS Bill has also reversed the evidential burden of proof for the ‘best financial interest duty’, resulting in the onus now being placed on trustees of a RSE to prove that they carried out their duties and powers in the best financial interest of the beneficiaries. The YFYS Bill will also permit regulations to outline additional requirements that must be satisfied by both trustees and directors of trustee companies of RSEs, failing to meet these additional requirements would result in a breach of the best financial interests duty. Importantly, the reversed evidentiary burden of proof for the ‘best financial interest duty’ does not apply to the additional requirements outlined in regulations. Contraventions of record-keeping obligations outlined in regulations will now be considered a strict liability offence, and the exemption to not disclose up to five percent of superannuation holdings in accordance with the portfolio holdings disclosure rules will also be removed under the reforms.

Our April 2021 Financial Services wrap-up also includes information regarding the Exposure Draft Regulations to the “Your Future, Your Super” package released on 28 April 2021, noting consultation has now closed and the regulations are yet to be finalised.

This article was co-authored with Remy Michelson.