Your Future Your Super – total fiasco
Today I want to go back to the issue of Your Future, Your Super, and specifically concentrate on Performance test.
If you are not sure what I am taking about, or would like to refresh your knowledge about this, exactly a year I wrote: “8 Superannuation changes July 2021”
As the title says, in that video I spoke about 8changes to super, however we will discuss only 2 of them today:
- stapling and
- performance test.
They both turned out to be a total fiasco.
1. Stapling
This idea has been criticized from the day it was introduced in November 2021. It created a real administrative burden for employers when onboarding new staff. The idea of stapling was for employer to have an immediate access to existing super fund of the new employee through the ATO website, but it turned the link is often not available, therefore employers wanting to have onboarding completed fast, will encourage new staff member to accept the default super fund of the employer.
My point is that if as a government you are introducing such changes, make sure that the infrastructure can manage those changes for the whole country, which obviously is not the case. In my original video, I agreed that introduction of stapling would be a positive outcome, especially to avoid numerous super accounts when changing jobs, but the execution appears not to match the planning.
2. Performance test
In the idealistic world you might agree that this is a good measure, but in real life the performance test introduced so much pressure and uncertainly across super funds. In my original video I said very clearly that the Annual Performance Test will force super funds to start applying investing for one year only, avoiding any investments that can carry some degree of risk, and by risk I mean volatility, hence reducing our ability to earn solid returns on some growth assets over longer term.
For years superannuation industry, financial planning industry, economists were talking about the idea of long-term returns. You know the saying: Don’t concentrate on short-term outcomes, it is the long-term returns that count and will create your wealth and growth of your assets.
And then the government comes and smashes that teaching in one idea of Annual Performance Test. Therefore, just as I predicted in my previous video, super funds started to invest passively, with lots of caution to reduce fees and to provide what I called “vanilla returns”
And look what happens now, government has officially admitted to the test having unintended consequences:
- Prospectively increasing the testing period to encourage longer-term investing
- Introducing benchmarking to encourage super funds investing in certain assets
By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement
