July 2013 marks the start of the new MySuper regime – the centrepiece of the federal government’s Stronger Super reform package – which is set to transform Australia’s superannuation system.
“MySuper is not compulsory until 2014 but employers will need to change what they are currently doing,” explains Mike Murphy, partner and head of Aon’s Australian financial and retirement management practice.
“There are a number of employers that have nothing to do with super now but they will not be able to avoid it with MySuper.”
“If you take the view that you as an employer need to do the right thing with the MySuper contributions you are making for your employees, you need to understand what MySuper is and how it works,” says Tim Furlan, director of superannuation at international consulting firm Russell Investments.
For employers, making a decision about which MySuper fund and provider to choose is complicated by the absence of any Australian Prudential Regulation Authority (APRA) authorised products, explains Wayne Walker, senior superannuation partner at Deloitte Actuaries and Consultants.
“None of the MySuper products are available as yet, which will lead to problems for employers who need to make a choice.”
He believes the MySuper changes are significant for employers who regard super as an important employee benefit, as companies will have very little say when it comes to the impact of these offerings on their people.
“There are restrictions in the legislation on how much an employer can customise their employee benefit offerings in this area,” Walker explains.
For HR professionals, the commencement of the MySuper regime may mean it is time to reassess their organisation’s approach in relation to employee superannuation.
“The volume of change at the moment is so huge that the HR function needs to take stock and ask, ‘What is the role of super into the future?’ It needs to take a step back and consider the value of super to the organisation,” Walker argues.
Garry Adams, Mercer’s talent business leader – Pacific, agrees.
“Are the current arrangements still appropriate for your organisation? Is super a differentiator or is it more a compliance issue? You need to be paying contributions to a MySuper-complying arrangement but is it the right one for your employees? Employee satisfaction or dissatisfaction may help form a view on this,” Adams notes.
The small number of organisations retaining their own corporate super fund face a massive task.
“They will need to look at issues such as financial operating reserves and insurance as some have their own benefit definitions, so this will lead to a rethink about insurance,” Walker explains.
Checking the market
Damian Hill, CEO of industry super fund REST, believes many organisations are likely to find the start of the new regime a good time to reassess their existing super contracts and providers.
“An implication of MySuper is that it will make it easier for employers and HR professionals to compare superannuation funds when selecting their default fund for employees who do not choose their own super fund,” he says.
“This is because MySuper products will be based on a few key differences such as cost, investment performance and the level of insurance coverage. It will also reassure them that their employees are not paying for unnecessary services they don’t use.”
“HR needs to think about how to get the most out of its service providers. Long-term contracts need to be reassessed in light of the new environment to determine if they are still appropriate,” he notes.
“Providers are integral partners and HR needs to ensure they are providing the best value for their employees – which is not necessarily the cheapest option.”
This could also be important for risk management. Murphy expects new MySuper offerings to be innovative and quite different to existing offers.
“Employers will need to be aware of the alternatives to avoid future problems with employees and litigation,” he explains.
“In the United States, with their 401(k) funds, there is a due-diligence requirement on employers, so from a corporate governance and risk perspective, employers need to manage down the potential for risks in this area.”
Although the focus is largely on MySuper, Murphy believes HR teams also need to look at what the organisation’s provider is offering employees who are interested in their super.
“They need to consider what flexibility is available from the provider to those who don’t want to be in the MySuper offering.”
Stronger Super jargon buster
Reform package for the superannuation industry covering MySuper, SuperStream and SMSFs.
New form of super fund for SG contributions where an employee fails to choose their own super fund.
The super fund selected by the employer to receive SG contributions for employees who fail to make a choice.
New electronic administration and reporting rules governing the superannuation system and employer contributions.