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Superannuation: Super choice – are you ready?

Every Issue

Cite as: (2005) 79(7) LIJ, p. 86


Fund choice will have an impact for both employers and employees.

The new superannuation fund choice regime, introduced on 1 July, is likely to increase administrative effort and costs for employers, particularly where there is an increase in the number of funds to which employers pay their employee’s superannuation guarantee contributions (SGC).

There are also important considerations for members. Before changing funds, members are encouraged to carefully compare the benefits offered by their current fund with that of any alternative fund.

For example, some super funds provide minimum death and total and permanent disablement insurance with no need for health evidence. In most cases this insurance will cease if members leave the fund. Before leaving, members may wish to satisfy themselves the insurance of any alternative fund is comparable to their existing insurance or, if they have changed, their current needs.

What is fund choice expected to mean?

Recent estimates suggest almost 50 per cent of working Australians are likely to be exempt from fund choice.[1]

Of the other half of working Australians eligible for fund choice, only a relatively small number are expected to choose an alternative fund. The Association of Superannuation Funds of Australia (ASFA) estimate only 8 per cent of members will make a choice.[2]

Many choices are now available in most super funds and such choices are often accessed by a limited number of members. For instance, Australians on average have three separate superannuation account balances incurring three layers of fees as they have not taken steps to consolidate them in the one fund.

Additionally, while experience varies across funds, it is not unusual for less than 10 per cent of members to choose the investment option in which their super is invested. These trends suggest fewer Australians, rather than more, can be expected to actually exercise fund choice.

Fund choice impacts for employers

Are your employees eligible for fund choice?
In general, all employees receiving SGCs can choose the fund into which contributions are paid. Importantly, there are exceptions to this general rule.

These exceptions include where contributions are payable under workplace or certified agreements, a prescribed law (e.g. a state award that specifies a fund) or to certain public sector or defined benefit funds. In these instances fund choice does not apply and the fund nominated in the agreement is the fund to which employers should pay super and employees are not eligible for choice.

Which fund is to be your “default” fund?
Your default fund is the one to which you pay your employee’s super if they do not tell you they want it paid to another fund.

To be able to nominate a fund as a default fund, an employer must satisfy itself the fund is:

  • a complying regulated super fund or retirement savings account;
  • able to accept any employer’s SGC; and
  • meets the insurance requirements of fund choice. Broadly, this means the fund must provide members aged up to 55 years of age with a minimum level of death only insurance or cover for a weekly premium of $0.50.

What do employers need to do under fund choice?
Eligible employees at 1 July 2005 – by 29 July 2005 employers must provide eligible employees with a “standard choice form”.[3] The employer must complete Part A of the form before providing it to their employees. The form may be provided electronically or in paper.

New employees from 1 July 2005 – employers are required to provide a standard choice form to all new employees from 1 July 2005 within 28 days of their start date.

Within two months of receiving the standard choice form or letter from the employee, contributions must start to be paid to the employee’s chosen fund – penalties apply for non-compliance. Broadly, these are 25 per cent of the contribution involved up to a maximum of $500 per employee per quarter. Any penalties are also non-deductible to the employer.

Confirm the requisite information is provided by employees exercising choice – see “Impacts for members” below for the requisite information.

Exercise caution when providing information to employees – only those licensed by the Australian Securities and Investments Commission can provide financial advice. Accordingly, unless an employer is licensed, they can only provide factual information about fund choice, employer obligations and how employees can nominate their chosen fund. They cannot give advice to an employee about which fund they should choose.

Certain records are required for fund choice showing that the employer has:

  • offered choice of fund to eligible employees and provided them with a standard choice form;
  • considered which employees do not have to be offered fund choice;
  • acted on employees’ fund choice and have on file any information employees have provided to the employer for their nominated fund; and
  • information about the employer’s default fund confirming it meets the insurance requirements.

Records must be in English and be kept for five years.

What additional flexibility can employers offer their employees?
Extend choice to other types of contributions in addition to SGC – fund choice applies only to SGC; however, employers may, at their election, allow choice in respect of other contributions including salary sacrifice and contributions paid above SGC.

Allow employees to exercise choice more than once in any 12-month period – under fund choice requirements, employers are only required to allow one choice in any 12-month period.

Fund choice impacts for members

Eligible members can nominate an alternative fund
To notify their employer of their chosen fund, an employee can either fill in a standard choice form or provide a letter containing the same information included on the standard choice form.

To be effective, an employee’s choice of an alternative fund must be in writing and contain specific items, including:

  • the chosen fund’s name and contact details;
  • confirmation that the chosen fund can accept their employer’s contributions and is a regular super fund; and
  • information about how the employer can make contributions to the chosen fund.

Is there a deadline for employees to advise their choice?
There is no deadline for employees to make a choice or return their fund choice form.

How often can employees make a choice?
Employees can only make one choice in any 12-month period.

Can employees choose more than one fund?
Employees can only choose one fund per employer.

More information about fund choice can be found at:

  • http://www.superchoice.gov.au – an Australian Taxation Office website for general information about fund choice. The standard choice form can be obtained from the site; and
  • http://www.superannuation.asn.au/guru – the ASFA website for information about fund choice, including what to consider when comparing and choosing a fund.

ANDREW PROEBSTL is joint CEO of legalsuper and company secretary of its trustee. He is also secretary of the Law Institute of Victoria’s Superannuation Committee and deputy chair of the Victorian Executive of the Association of Superannuation Funds of Australia. He can be contacted on ph 9607 9401, email aproebstly@legalsuper.com.au or visit http://www.legalsuper.com.au.

This column is a general summary of the new fund choice regime. Readers may wish to seek advice to confirm their specific fund choice obligations or rights.

supercolumn@liv.asn.au


[1] ASFA Research Centre, Implications of choice of superannuation fund legislation for members, employers and funds, February 2005, available at http://www.superannuation.asn.au.

[2] Note 1 above.

[3] Copies of the standard choice form can be obtained from http://www.superchoice.gov.au or by calling the Australian Taxation Office on 13 28 64. Employers may choose not to use the ATO form; however, any alternative form must contain all of the information on the ATO form.

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