Your Future, Your Super reforms – are you ready?
With only one month to go before the Government’s Your Future, Your Super (YFYS) reform package is to take effect, the question is – is the industry ready? Is your organisation ready?
The YFYS reform package, announced in the 2020-21 Federal Budget, is designed to ensure the superannuation system delivers better outcomes for members. The draft legislation and explanatory material consultation process concluded on 24 December 2020, with draft regulations and associated measures released for consultation on 28 April 2021.
The proposed changes are yet to pass the Senate, with further changes and deferred implementation dates still possible. Nonetheless, super funds have been working in the background to readily prepare for the new requirements by 1 July 2021. The date is fast approaching, which is why it’s essential for super funds to monitor the legislative changes and adjust their implementation plans accordingly as further details are confirmed.
To help super fund trustees prepare their organisations for the reforms, this blog covers a summary of the reforms, key timelines, and the expected strategic, operational, and risk and compliance impacts.
Purpose of the YFYS reforms
Changes under YFYS are intended to empower consumers in their selection of super funds and to determine whether their superannuation is working for them.
The reform package seeks to address the following findings from the most recent Productivity Commission review into superannuation and the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry:
Unintended multiple accounts causing unnecessary fees and insurance premiums because of people changing jobs and not actively deciding to maintain a single super account.
Australians paying too much for their superannuation due to poor competition between default super products, complexities of the system and lack of simple and clear information for members to select the most appropriate product.
Members placed in underperforming super products due to the design of default arrangements.
Funds lack accountability to their members for their conduct and the outcomes they deliver and there is inadequate transparency on how funds are spending members’ money.
Though the reforms come with good intentions, many in the industry comment on whether the package will adequately achieve its objectives and there is speculation about potential unintended consequences for members. Despite the unintended consequences which may arise, the principles and intent of the reforms are a step in the right direction for the Australian superannuation system.
Summary of the YFYS reforms
The proposed legislation for the YFYS reforms implements three key changes to the superannuation system.
1. Stapling of funds
Under the reforms, an employee’s current super fund membership will follow them (a ‘stapled fund’) to a new employer. This policy measure aims to reduce multiple accounts. In practice, employers will be required to locate a new employee’s existing fund and make contributions to that fund on behalf of the employee.
2. Super fund performance assessment
YFYS requires annual performance testing of MySuper products (and certain other products identified in the regulations), with assessment results reported publicly on APRA’s website.
Concerns have been expressed around the current construction of the annual performance test, with a focus on the effectiveness of the implementation of the disclosed asset allocation, notwithstanding the appropriateness of the asset allocation, the relativities of the asset allocation to that of other products, or the associated member outcomes. No doubt these issues will be considered as part of the pending Senate hearing and ongoing reviews of the effectiveness of the annual performance test.
If a product fails the assessment, trustees will be required to notify members/beneficiaries who hold the product within 28 days of receiving notification from APRA. If a product fails the performance assessment in two consecutive years, the trustee can no l