Disclaimer: What you're about to read is of a general nature and doesn't take into account your personal financial situation, needs or objectives. We recommend you seek financial advice before making any decisions about your super and consider the relevant UniSuper PDS and TMD.

Disclaimer: What you're about to hear is of a general nature and doesn't take into account your personal financial situation, needs or objectives. We recommend you seek financial advice before making any decisions about your super and consider the relevant UniSuper product disclosure statement. At the time of recording, any Budget announcements are proposals only and shouldn’t be considered final until legislation passes. We’ll keep you updated as developments occur.

Tania: Hello, and welcome to this Federal Budget edition of "Super Informed Radio," the podcast that unpacks the world of super, finance, and life's money matters. I'm Tania.

Lyndon: And I'm Lyndon.

Tania: Well, Lyndon, as many other Australians would have done last night, we sat down to watch the Treasurer, Josh Frydenberg, hand down 2020 Federal Budget. But while there were a heap of announcements that aim to get Australia back on track in the face of COVID-19, there seemed to be actually very little in there about super.

Lyndon: That is right, Tania. There weren't actually a huge number of announcements that will impact people straight away, but there was quite a bit of change announced for the why super will work in the future. And of course, many of those changes would flow through to funds like us here at UniSuper, which brings us to today's action-packed episode.

Tania: Correct, and in what's become a bit of a Federal Budget tradition, we're stoked to be joined our Policy & Advocacy Manager, Benedict Davies, to help us unpack some of the details. Benedict, welcome back to Super Informed Radio.

Benedict: Thanks, Tania. It's good to be here.

Lyndon: Now, Benedict, just before we jump in—high-level thoughts on what the Treasurer handed down last night?

Benedict: It was a very significant budget with some very significant announcements. I think with regard to superannuation, it was really what wasn't announced because we had anticipated many announcements that weren't actually forthcoming. So it's almost what wasn't said. So it was a big budget about government spending, not necessarily about superannuation, but there were some changes we'll talk about.

At a broader level, I'd encourage members to read through commentary from far more eminent commentators than me. The Financial Review's covered it very well, so has the ABC. And perhaps the best thing I've seen in fact is some excellent coverage by Peter Martin in The Conversation. He refers to it as a budget of tax cuts, business injections, and lots of hope.

Tania: Interesting. Are you able to give us a quick rundown on those tax cuts and all of the hope?

Benedict: I can certainly talk about the tax cuts, bringing forward of tax cuts that had been announced in the Government's tax plan last year. And it sounds like the Opposition will support them, so they could be legislated very quickly and they will be backdated to 1 July 2020. Part of the tax reduction will take place through something we had in last year's budget called the Low and Middle Income Tax Offset.

I think, if I remember, a few wags had dubbed the LAMITO the ‘lamington’ tax offset. So the lamington has returned this year, at least for one more year. But the exact mechanism how they go about doing this is likely to be—if the law is passed swiftly by the Parliament—the ATO would publish new withholding rates, which is likely to see increase in take-home pay as soon as those withholding rates become effective.

Tania: Well, that's good. An increase in take-home pay is always good news. And there were some announcements about further economic support payments, could you go into a bit of detail about what they were?

Benedict: Yeah, just reading the eligibility for that, it's not perfectly clear exactly who'll get it. But there were some COVID-19 economic support payments announced earlier on in this year. And in the Budget last night, the Government announced two separate payments of $250, one in November, and one early next year, to eligible pensioners and carers.

There were a few other categories of people who it may go to, but just without actually having seen more details, I guess we'd say for pensioners and carers at this stage.

Lyndon: Very good. OK, so let's move on to the announcements about super. They seem to be less about super and a bit more about the way that super's going to work. Is that fair to say?

Benedict: I think that is fair to say. So there's nothing sort of immediate that members need to do, and I think that's an important point for members to know. But a lot of stuff was speculated and has been speculated about for the last six months. And there were a whole lot of things that weren't announced that people were anticipating being announced. 

So I’d say there were surprisingly few announcements, and I say ‘surprisingly’ because there has been a series of inquiries over quite a few years now, including the recently completed Retirement Income Review, which has sent the government a large document of 650 pages looking at policy options, but without recommendations on how to make some changes to the retirement income systems—that's superannuation and the Age Pension. And leading up to that, people had been speculating there'd be changes to maybe the super guarantee rate of 9.5% and would it get to 12%.

Or would there be changes to the Age Pension or rental assistance—even maybe there'd be changes around concessional and non-concessional caps for superannuation. But there were no changes announced at all on that. So that was a bit surprising because there'd been a lot of talk for the last six or so months that there might be some changes.

The Government did restate a couple of important but temporary measures, which they announced earlier on this year, but they're still live, so these are things that members could potentially take advantage of still. One is the COVID early release payment, and they have relaxed the rules to receive an early release payment from superannuation for those who've lost their jobs or have seen a reduction in their working hours, and that is a payment that's still available until the end of this calendar year.

They also restated an announcement just reminding people that those who receive certain types of pensions, typically an account-based pension, like our Flexi Pension, could reduce the minimum payment. We wrote to members in June, I think, giving them some options around that, but that's still a possibility as well, to request a lower minimum payment rather than the legislated full minimum.

But really, just those two announcements were the main member-related, immediate superannuation measures from last night's budget, and they're already the law.

Tania: Right. So that sounds pretty much business as usual. The Treasurer did announce a package called ‘Your Future, Your Super’, which I'm sure we'll be hearing more about over the next year or so. What's it all about?

Benedict: Yeah, I think we will be hearing a lot more about this. It's a big change to the way the superannuation system more broadly operates. Members don't need to do anything yet, but it does change the way funds interact with their members, it affects the way funds get new members, and there's some other accountability measures as well.

There are four parts to it really. The first one, oddly, is called ‘stapling’. It's essentially a superannuation account that follows you. So if you change jobs, the idea is, rather than having to open a new account every time you change jobs—which creates multiple accounts, which can be a problem—the superannuation account will follow you, requiring an employer to pay into your existing account, if that's what you want to happen.

Lyndon: It's kind of amusing terminology, wouldn't you say, Benedict? Stapling? I mean, it all sounds a little bit analogue.

Benedict: Yes. Well, personally, I prefer paper clips. You can remove them, and a piece of paper's much easier to work with. I don't know.

Lyndon: We're in 2020, so surely ‘attaching’ super account might be more appropriate.

Benedict: Yes, well, it came from the mind of Justice Hayne who ran the Royal Commission into Misconduct in Banking, Super and Financial Services. And it was an observation he made that he thought it was a good idea that a person would have an account that followed them. And in a sense, he used the word ‘stapling’, so that's where this policy's come from.

So it continues to call this stapling. The Government's using language now a bit like ‘an account that follows you’, it's ‘an account for life, if that's what you want’, things like that. So you know, for existing members of UniSuper, it doesn't really mean anything different. You know, they can go to a new employer and the new employer would very easily be in a position to pay into their UniSuper account.

What it does mean though is for first-time entrants into the labour force who don't have a superannuation fund, there needs to be some mechanism to deal with that. And that leads in, I guess, to the next mechanism which is they want to come up with a ‘YourSuper’, they're calling it, comparison tool, which is something the ATO will run. People will be able to use this tool on the ATO website and it will empower people to make choices. So it will present MySuper products—which is a type of product within superannuation—and people will be able to compare them. I think they're going to be ranked as well. It's not perfectly clear exactly what this tool would look like yet because it hasn't yet been built, but there'd be some sort of portal, probably connected to myGov website, and people would go there and they could look up superannuation and make a choice, if they wanted to, informed by this list.

What we don't know about these measures is how it will interact with the recently passed Your Superannuation, Your Choice. That gives some members choice of fund, the ability to choose another fund once an EBA's remade. Now that applies to accumulation members, and not defined benefit members, but those measures recently legislated will effectively come in probably around about July next year, when EBAs are made across higher education sector. So there's a bit of time to work it out. The Government needs to consult on this, they need to draft legislation, so we don't know, but it looks like people won't be able to do anything regards this anyway until at least July next year.

So we've seen, you know, the super account for life, the stapling. There's this new YourSuper comparison tool. And there are a couple of other measures which I think will give members comfort and they're focused on transparency and accountability. We did have a Royal Commission and there were some issues in some parts of the superannuation system, where we had some concerns. And so the Government is going to impose additional obligations on trustees. I mean, trustees already have to do quite a bit about accountability and transparency, but there'd be more of that. And there's also some requirements or giving APRA the power to annually test underperforming funds. And if funds underperform, there will be some serious consequences, where currently there seem to be far less serious consequences.

Lyndon: What are some of those consequences likely to be, Benedict? Is there any kind of clarity on that?

Benedict: There's a bit. It's going to be wait and see how it works. So an underperforming fund, and there's quite a complex formula we were looking at last night and saying, is that integral calculus? Is it using natural logarithms? Whatever it was, there's this complex formula in law that they're going to use to work out the performance of funds to benchmark performance. And if a fund underperforms that for two years in a row, there will be some consequences, one of which will be the inability to receive new members.

Tania: Benedict, as always, it's been a pleasure speaking with you. Thank you for coming in and joining us today.

Benedict: Thank you, thanks for having me.

Tania: Now, if you're interested in doing more of a deep dive on this year's Budget, we're actually going to be running a live webcast with Benedict on Wednesday 14 of October, that's next Wednesday, at 12:30 pm Melbourne time.

Lyndon: That is right. And in addition to hearing Benedict speak in more detail on the announcements that are related to super in the Budget, you'd also be able to ask him any questions you might have about those Budget announcements. So to sign up, head to unisuper.com.au/webcasts, and we'll have all of the details in our show notes about that for you as well.

Tania: And that wraps up this special Federal Budget edition of Super Informed Radio. As always, you can catch up on past episodes at unisuper.com.au/podcasts, or you can subscribe to us through any good podcasting app. We'll see you next time.

Lyndon: Bye for now.

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