Time to get set for superannuation stapling

This article was current at the time of publication.

Reforms in the Treasury Laws Amendment (Your Future, Your Super) Bill 2021 passed in June this year have been described as the biggest since compulsory super was introduced in 1992.

The Your Future, Your Super (YFYS) reforms place significant new requirements on employers. They include annual performance tests for super funds, along with a requirement for funds to ensure all investments are made in the best financial interests of members. 

One of the biggest changes is around “stapling”.

The core aim of stapling is to prevent the proliferation of superannuation accounts by enabling a person’s existing account to follow them from job to job, instead of new ones being created automatically and members paying fees to multiple funds. 

In other words, “super for life” unless an employee opts into having their contributions and account balance redirected to another fund, such as their new employer’s default provider.

According to the Australian Government, stopping the creation of unintended multiple accounts will boost balances in super by about A$2.8 billion over the next 10 years.

Super stapling impacts on employers

However, stapling is not without its pitfalls, especially for smaller businesses and their accountants. Although most of the YFYS reforms came into effect from the 2021–22 financial year, stapling has been pushed back to 1 November 2021 and will certainly impact the superannuation guarantee (SG) compliance obligations of business owners when onboarding new employees.

The first step is to offer new starters an Australian Taxation Office (ATO) superannuation choice form. If they don’t choose a fund, the employer will need to check with the ATO webpage whether they have a stapled fund and then pay super into that fund. 

If a stapled fund can’t be found, super should be directed to the business’s default fund as a last resort.

“The attraction of this new law is that there is now very little reason why Australians should end up in half a dozen different super accounts, merely due to changing employer,” says CPA Australia’s Policy Adviser Superannuation and Financial Planning, Richard Webb. 

Generally, this should reduce paperwork for employers concerning payroll and HR compliance. It should also reduce paperwork for new employees, who will now be able to skip past the question unless they really want to nominate a new fund.

In a joint submission, CPA Australia and Chartered Accountants Australia and New Zealand questioned whether it is appropriate that an underperforming or prohibited product be a valid stapled fund.

Webb says the intention of the policy is not to necessarily provide a vector for engagement at a new employer. 

“This means employees can expect very little interaction with their new employer about superannuation,” he says. 

“It also means that eventually, employers will mostly really need to gather stapled fund details and get their valuable time back when processing new employees.”

Will it be seamless?

“The downside – as with all new initiatives involving default super arrangements – is that there is still the need for an interface between the ATO and businesses and that may involve a transitional period,” Webb says. 

“If all is not ready to go in a seamless way which looks and feels like current processes involving employee choice of superannuation fund arrangements, there will need to be manual processes in place.” 

He says that, at the very least, these will slow down business super payments, but could result in errors for which employers end up being penalised.

“The reality was that this legislation didn’t get royal assent until eight days before the end of the [last] financial year, so we’re a lot happier with stapling being pushed back to November, rather than the original start date of 1 July.”

For smaller businesses, which may not use a payroll provider, the system must provide the correct superannuation fund details to contribute to, Webb emphasises.

“If the new interface is not ready to go, it could mean workarounds such as an employer ringing the ATO to get details of the stapled fund over the phone. This could be subject to errors – a misheard number here, a badly handwritten number there.”

Risks for small business

He says the ATO is now a lot more advanced than it might otherwise have been in liaising with payroll companies and software providers about what the requirements should look like.

“But one of the things a lot of people forget is that small businesses very often do this sort of thing themselves, literally off an Excel spreadsheet,” Webb notes. 

“They don’t have the resources or the scale needed to contract to a payroll provider. Also, there may not be any major productivity gains to them in using enhancements to their bookkeeping software that does employee payments as well.”

Regardless, practitioners should ensure their clients are aware that such manual processes pose a significant risk, particularly in the event of a contribution being inadvertently credited to an incorrect account or the wrong fund. It will then fail to count toward the client’s compliance obligations under the SG, the penalties for which assume the super contribution was not paid at all.

However, whether small businesses heavy with manual and paper-based processes are ready, willing or able to automate their approach in the face of the new stapling regime remains to be seen.