Your Future, Your Super: Explained
You may have heard the term “Your Future, Your Super” with some frequency of late, and understandably, may have some questions about what it is and what it means for you and your superannuation.
The Your Future, Your Super (YFYS) reform is a requirement introduced by the Australian government from 1 July 2021, and is aimed at improving the transparency and accountability of the superannuation system. These reforms aim to make the super system better for members in a number of ways, which we’ll explore below.
Perhaps the most significant element of the reform is the YFYS test. Under this test, super funds are required to meet an annual performance benchmark. Funds that fail to meet the benchmark will be required to inform their members and the Australian Prudential Regulation Authority (APRA) and take steps to improve their performance.
The YFYS test is intended to ensure that super funds are delivering strong investment returns for their members and to encourage competition in the superannuation industry. It is part of a broader set of reforms aimed at improving the efficiency, transparency, and competitiveness of the Australian superannuation system.
Another significant change is the introduction of “stapling”; meaning your super automatically moves with you when you change jobs. In other words, your super is linked – or ‘stapled’ – to you.
Overall, the YFYS changes aim to give you greater choice and control over which super fund you invest with.
The intention of the YFYS reforms is to provide several potential upsides or benefits, namely:
The YFYS test is designed to encourage super funds to deliver strong investment returns for their members, which could help boost retirement savings and improve retirement outcomes. It may encourage greater competition among super funds, as those that fail to meet the benchmark may lose members to better-performing funds. This could incentivise superannuation funds to improve their investment strategies, reduce fees, and provide better member services.
The YFYS test requires super funds to disclose their investment performance and compare it to the benchmark, which could improve transparency and accountability in the superannuation industry. This could help you as a member make more informed decisions about your superannuation investments.
The introduction of stapling has been designed to help prevent the creation of multiple superannuation accounts; often unintended when changing employers. This means that a new super account won’t automatically be created every time you start a new job, helping you avoid multiple accounts with fees and insurance premiums. Your super is now ‘stapled’ to you, and you can commence a new job opportunity without worrying about where your super contributions will be paid to. This does not impact your ability to change funds at any time if you wish.
There are some potential unintended consequences or industry criticisms of the YFYS test. Here are a few:
While investment performance is an important aspect of superannuation, it's not the only factor that determines the quality of a super fund. The YFYS test primarily focuses on investment returns, which means that other important factors such as fees, insurance, and member services may be overlooked.
The test uses a single measure of performance, based on implementing an investment strategy, as a simple and objective assessment of performance. This can unintentionally affect investment decisions of all funds to reduce the risk of failure and closure by encouraging short-termism and benchmark hugging as well as discouraging certain investments.[1] Calibration of benchmarks may take place as the reforms are rolled out, however the effects are yet to be seen.
Employees changing jobs may have inappropriate insurance cover within their stapled superannuation account, particularly those moving to high-risk occupations. Employees may also be stapled to underperforming products, which could lead to diminished retirement savings. This requires active consideration from employees when selecting a superannuation fund as part of an onboarding process.
The YFYS reforms are a set of measures introduced by the Australian government to improve the efficiency, transparency, and accountability of the superannuation system. One of the key components of the reforms is the YFYS test, which requires funds to meet an annual performance benchmark. While there are some potential unintended downsides of the YFYS test, it also has several potential benefits, such as improving investment performance, encouraging competition, and increasing transparency. The YFYS reforms aim to ensure that super funds are delivering strong investment returns for their members and to promote a more competitive superannuation industry. Stapling forms another central component of the reforms and will mean superannuation accounts will follow members from job to job unless otherwise changed by the member.
As these reforms are still in their early stages, their effectiveness in achieving these objectives remains to be seen, but the intent is to improve the superannuation system for all Australians.
Footnotes
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[1]
https://treasury.gov.au/sites/default/files/2023-04/c2022-313936-yfys-review.pdf
