Any MySuper products that fail a new APRA-administered annual test twice in a row will not be allowed to receive any new members until they improve their performance.
The prudential regulator will conduct benchmarking tests on the net investment performance of MySuper products. The products that have underperformed over two consecutive annual tests prohibited from receiving new members until a further annual test that shows they are no longer underperforming.
The measure will kick into action from 1 July 2021 with MySuper and then extend to all "trustee-directed" accumulation products outside of MySuper from 1 July 2022.
"The new performance framework will now be the primary method for measuring underperformance in the superannuation sector and the APRA Heatmaps and the annual member outcomes self-assessment under existing law will be amended accordingly," the government said, adding it puts a Productivity Commission recommendation into motion.
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Over time, other investment options which are made available by the trustee will also be subjected to annual performance tests.
It will be calculated over an eight-year period, to account for longer-term returns. It will use after-fees and after-tax performance, and will take individual asset allocation in performance.
"Products that underperform their net investment return benchmark by 0.5 percentage points per year over an eight-year period will be classified as underperforming. For MySuper products that were in place from 1 July 2014, their first performance test will be based on seven years of performance data. On an ongoing basis the test will apply over an eight year period."
Underperforming funds will have to inform their members by 1 October 2021. They will also have to provide them the YourSuper tool, where they will be listed as underperformers until they improve.
The government is planning to fund this by increasing the levies paid by regulated financial institutions.
Overall, it said it will provide $159.6 million over four years from FY21 to implement the reforms to superannuation.
Three other measures announced include: an ATO-run portal for selecting MySuper accounts, stapling accounts and members, and a greater obligation of transparency and accountability on members.
ATO will develop a YourSuper portal to allow a new employee to pick their superannuation product from a list of MySuper products.
Existing superannuation accounts will be "stapled" to member accounts to avoid mushrooming of duplicate accounts. This has been panned by Industry Super Australia in the past, which said it may encourage errant behavior from funds as they look to attract first-time super entrants, and will potentially worsen the problem for people currently in an underperforming fund.
Lastly, superannuation trustees will have higher obligations towards members' best interests. The budget did not go into details on this.
What is missing or delayed: ERS extension, Retirement income review, CIPRs, Eligible Rollover Funds
The budget did not extend the early release of superannuation (ERS) scheme past 31 December 2020. Adjusted drawdown rates for account-based pensions were also left untouched.
There was also no sign of the Frydenberg-commissioned Retirement Income Review Report, which was tabled to government by its independent panel on July 24 but still hasn't been published wider.
The retirement income covenant, announced in the federal budget two years ago, was delayed from a 1 July 2020 start date to 1 July 2022.
"[This is] to allow continued consultation and legislative drafting to take place during COVID-19. This will also allow finalisation of the measure to be informed by the Retirement Income Review. This measure is estimated to result," the government said in the budget.
Also delayed was the legislation for the closure of eligible rollover funds, which has been moved to a 30 June 2021 date for moving sub-$6000 accounts to ATO, with funds given another year to transfer the accounts with more than $6000 in balance.