MYSUPER AND CHOICE FUNDS
MySuper was introduced in 2013 to simplify the way employers and employees choose their default superannuation fund. But how does it work and how is it different to the way employer super used to work?
||A MySuper product can be a stand-alone product or it can be offered as a part of the choices contained in a regular super fund.
||Default Superannuation Guarantee (SG) employer-paid contributions can only be paid into a MySuper product or a fund that has a MySuper option.
Many modern super funds offer members numerous choices of investment, insurance, advice and other services. The choices available are so extensive that there is almost nothing an investor could want that can't be found in a modern superannuation fund
But what if you are one of the millions of Australians who, while you understand why superannuation is important, just want a simple no-nonsense super fund that won't force you to make decisions about investment and insurance options?
This is why the government in 2013 introduced MySuper, a system that allows superannuation funds to offer products that are much simpler than the main funds many members were used to dealing with. The essence of MySuper products is that they contain just one investment choice and a standard cover insurance arrangement rather than regular funds that offer dozens of investment and insurance choices.
MySuper was part of the government's StrongerSuper reform package that included improved regulation, tougher rules for how funds should be managed and controls regarding trustee conflicts of interest. It included the SuperStream initiative which is a special program that forces funds to modernise their administration operations to ensure they can do things most people take for granted: accept electronic transactions, identify lost super accounts and transfer them to the Australian Taxation Office and reduce the time it takes to process and transfer money between super funds from one month down to just three days.
MySuper products have other advantages too: as simpler products they should have lower fees, recalling that the more complex a fund is with more choices the more expensive it usually is. And as simpler products they will not need the same complex Product Disclosure Statements as regular funds. MySuper products simplify superannuation funds but they do not dumb it down. They will still offer financial advice which will be paid for by the fees the members already pay.
MySuper and super choice
Super choice has been operating in Australia since 2005, meaning that for many years now most employees have been free to choose which super fund they would like their employer-paid contributions sent to.
But because not all employees have a preferred super fund, employers are required to have in place a default super fund for employees who haven't made a fund choice or who aren't interested in making one.
These default funds are normally chosen by the employer, often in consultation with their employees, or they can use the fund endorsed by their employer industry association or nominated in the industrial awards that sets their employment terms and conditions.
Because many of the nation's employees who use their employer's default super fund keep most of their superannuation in the fund's default investment option, the government has integrated MySuper into these workplace arrangements by stipulating that only MySuper products will be allowed to be default super funds that can accept Superannuation Guarantee contributions.
In practice, this means super funds and wealth management groups that wish to compete in the workplace default superannuation market need to apply to the superannuation regulator, the Australian Prudential Regulation Authority (APRA), for authorisation to offer MySuper products. If they don't, these funds had until July 2017 to transfer members and their account balances into funds that are MySuper authorised.
MySuper is we now call the default super product your employer uses for compulsory superannuation contributions. They are simplified superannuation products containing:
- just one investment choice;
- one standard insurance arrangement.
As simpler super products they usually have lower fees and are easier to compare.
MySuper in practice
For the majority of employers and employees who use the default super fund's default investment option and who have that fund's standard insurance cover, MySuper will not impact them much at all because they will simply become of member of that fund's MySuper option - which in most cases was the default investment option they were already using anyway.
All the usual provisions of super fund choice also apply, so employees not happy with the MySuper product chosen by their employer can choose another fund. The only condition is that the employee needs to already be a member of that fund or MySuper product and that the fund can accept contributions from their employer; these are conditions that already apply to super choice.
Similarly, because MySuper products are in most cases a specially designated investment option within a regular super fund, in the same way that members can have their superannuation account balance spread across several investment choices (e.g. across the default and other investment options), they can also have their balance spread across the MySuper option and other investment options offered by the same super fund.
In these cases members will still receive a single annual account statement from their super fund each year. If they have money only in the MySuper product, the annual member statement and member information they receive will be simpler because it will only need to describe the MySuper product.
MySuper products are diversified investment products, i.e., have their investments spread across several asset classes such as shares, bonds, property, cash and 'alternatives' liked hedge funds, private equity and infrastructure. Most MySuper options are weighted in favour of growth assets being shares and property meaning they are expected to earn good long term rates of return