The problem with 'stapled super'

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There's a new superannuation term that could potentially make you $230,000 richer in your retirement.

The term came into effect on November 1 and is 'stapled super'.

You need to add to your financial vocabulary and work out what it means to you.

the problem with super stapling

Yet 70% of Australians haven't a clue what it is.

What does 'stapled super' mean?

Millions of Australians were 'stapled' to their existing super fund for life from November 1.

This means that when a new employee who doesn't choose a super fund when they start at a new company, their employer must pay super contributions into their existing account known as a stapled fund.

How will it work?

If a new employee doesn't choose a superannuation fund, employers must use an ATO database to check if the employee has a stapled (existing) fund. If a stapled fund exists, super contributions must be paid into that fund.

Where a new employee hasn't chosen a fund (they are given a standard choice of superannuation fund form within 28 days of joining a new employer) and doesn't have a stapled fund, super contributions must be made to a new account in the workplace default super fund.

Why the change?

The new rule aims to cut the chance of workers accumulating multiple super accounts after moving from one job to another.

Having more than one super account can be costly for employees, as it can mean they are paying multiple sets of fees and insurance premiums.

Is stapling bad for you?

It can be if you are tied to a poor fund for life. One million Australians are currently in a super fund that failed the tax office's MySuper fund performance test.

A dud super fund typically charges high fees and delivers below-average returns over the long term. This could cost you as much as $230,000 at retirement, according to research by Industry Super Australia, as even small changes in investment returns can add up to significantly more money at retirement.

What's worse, as well as dud MySuper funds, you could be in a woeful super fund that isn't a MySuper fund reviewed by the regulators.

Can you change your super fund?

Yes. Employees can always change funds if they wish.

When they do, their new fund will become their stapled fund. Employees only have to notify their employer of the details of their new super fund.

If you don't change from a dud fund, what happens?

You could be tied to a stapled dud fund that hasn't even been tested by the tax office. While the tax office has tested the MySuper funds, half of all super funds have not been tested, which includes some of the worst-performing products with the highest fees.

You need to actively pick a super fund. The Your Super Comparison Tool from the tax office shows you the funds which consistently perform well over the long term and the fees they charge. Or check out Money's super comparison tool.

Only a small number of members move out of dud funds. Why?

Thirteen superannuation funds out of 76 MySuper funds failed the first annual performance test of MySuper products by the superannuation regulator, the Australian Prudential Regulation Authority (APRA), released at the end of August.

As a result the dud funds were forced to write to members to notify them that their fund was officially underperforming in September and they should move to a better performing fund. According to APRA, only 68,000 of the one million accounts were moved from the poor funds. That is less than 7% or only 4.2% ($2.2 billion) of the assets in the dud funds.

Super fund members need to ensure that they are in a high performing super fund, according to Margaret Cole, executive board member of APRA.

"Research shows that the difference in outcomes between a top product and an underperforming one can amount to hundreds of thousands of dollars over a working life," says Cole.

What if I have more than one super fund?

If you have more than one super fund, you will be automatically stapled to the fund that has been actively receiving contributions most recently.

If there is more than one active fund, there are rules to select the most appropriate fund, for example, the fund with the biggest balance.

Do employers still need to have their own default or preferred funds?

Yes.

If a new staff member is not already a member of a superannuation fund, then the employer is generally required to offer them a choice of fund and if they don't choose a fund they will sign them up to the company's default fund, which will then become their stapled fund.

Where to go for help?

The vast range of products and options on the market can make the idea of trying to choose a new fund seem overwhelming, but there has never been more information available to consumers to help them make informed decisions about their super, says Cole

"The best place to start is the Australian Tax Office's YourSuper comparison tool, which incorporates the findings of the MySuper performance test, while useful information can also be found on the Australian Securities and Investments Commission's MoneySmart website," says Cole.

For those members with their savings in choice products, APRA will release its first Choice Product Heatmap in December, which will deliver clear, credible and comparable insights on the performance of a large segment of the choice market, says Cole. The MySuper Product heatmap will include the performance test scores of every product assessed.

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Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.

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