Superannuation will be in the political hot seat in 2021 as the government pushes its Your Future, Your Super legislation through Parliament.
Another contentious issue will be the future of the Superannuation Guarantee, which is legislated to rise from 9.5 per cent of wages to 12 per cent by July 2025.
The first 0.5 percentage point rise is scheduled for July 2021.
But a group of Coalition backbenchers oppose the move.
Back in August, after earlier talking down the possibility of delaying the increases, Prime Minister Scott Morrison said the legislated hikes, which would add up to $20 billion a year to super fund investment pools, would have to be carefully considered.
Here are four stories to watch in the new year.
The battle over the SG
Mr Morrison spoke about the need to “carefully consider” the legislated hikes after a seeming free-for-all among Coalition members, with almost a dozen backbenchers calling for the rise to be held up.
Outspoken government member and chair of the Standing Committee on Economics, Tim Wilson, has said the rise would be economically destructive.
“If it’s a choice between increasing the super guarantee now and going back to work, I’ll back Australians going back to work,” Mr Wilson said.
If the government were to scrap the legislated SG rise, they would have to introduce the move in the May budget.
Alex Dunnin, research director with Rainmaker, said although plenty of Coalition MPs were calling for a halt, it would be politically challenging to achieve.
“Scrapping the SG rise would take a lot of political capital and the PM might not want to pay that price,” Mr Dunnin said.
But other changes could be on the way.
“Super is not what it was before the COVID emergency after early withdrawals were allowed,” Mr Dunnin said.
“There is a strong political argument for a reset and it could be allowing more super to be used for a housing deposit.”
Under current arrangements, first-home buyers can withdraw up to $30,000 from their super to cover the cost of a housing deposit.
But this money can only come from voluntary contributions.
The government’s superannuation reforms
Passing the Your Future, Your Super legislation next year will also be difficult for the government.
Although the legislation’s thrust has bipartisan support, Labor MPs have attacked the detail.
The reforms will see people taking up their first job stapled to the same super fund for life – unless they actively choose to change and set up another one.
The Australian Taxation Office will oversee the move by providing a list of funds on its website for new workers to choose from.
“Stapling can only work if there is a way of prodding people to consider changing funds and that moment could be when they start a new job, ” said Ian Fryer, general manager of research house Chant West.
“You don’t want to see the first choice someone makes delivering for them for the rest of their lives.
“To do that might leave people in funds that are not appropriate, especially in relation to insurance levels.”
The government has yet to provide further detail on how the stapling will work, but one way would be to allow employers to offer their preferred fund to an employee on signing up, Mr Fryer said.
APRA’s performance reviews
The Your Future, Your Super legislation will also introduce annual performance reviews run by financial regulator APRA.
From July 2021, APRA will measure the performance of default super funds and inform members if and when their fund fails to deliver financial returns that meet industry benchmarks.
Should a fund underperform for two years in a row, it will be barred from taking on new members until it convinces APRA it is performing adequately again.
The reviews will only cover default funds to begin with.
From July 2022, they will be extended to include ‘trustee-driven’ choice funds.
But the government currently has no plans to include funds that choose single investment categories such as equities or bonds, or funds that run off a platform or large investment base, where members can choose from a myriad of options themselves.
That means 8.4 million Australians will not know whether their fund is a dud, according to Industry Super Australia.
APRA’s measure of performance will also exclude administration fees, which are far higher in for-profit retail funds than in not-for-profit industry funds.
“Accordingly, the measures are misdirected and do not focus on the financial arrangements which the Productivity Commission and Hayne royal commission identified as contrary to members’ interests,” Industry Super Australia said in its response to the legislation.
How the legislation fares will ultimately depend on the position of crossbench senators, but that has yet to be determined.
Independent senator Rex Patrick told The New Daily he had “no position on the legislation yet”.
How interest rates will affect portfolios
The fall in interest rates to nearly zero will make portfolio structuring difficult through 2021.
“Defensive assets are usually supposed to deliver some yield, but that will not be the case in the current environment,” Mr Fryer said.
“So what will a defensive portfolio structure look like now without going up the risk spectrum?
“If they allow further early release of super for housing or expanded hardship provisions, that will also affect the way portfolios are structured.
“We don’t know how funds will deal with that.”
The New Daily is owned by Industry Super Holdings