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From 1 July 2005 , many Australian employees have been able to choose the superannuation fund to which their employer directs superannuation guarantee contributions on their behalf.
However, many employees will find themselves unable to participate in choice as their employer falls outside of the scope of the legislation.
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BACKGROUND AND OVERVIEW |
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After several years of debate, the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004 saw 1 July 2005 as the start date for the new regime.
Apart from a broad range of exceptions, existing employees as at 1 July 2005 should have been offered a standard choice form. New employees must be offered a standard choice form within 28 days of commencing employment.
In cases where an employee does not choose a fund or does not make a valid choice of fund, the employer will need to direct SG payments to an eligible choice fund - essentially a complying fund or RSA.
If an employer does not fulfil its obligations in relation to the choice of fund rules it will be liable for a maximum "choice" penalty of $500 for each employee. This ‘choice penalty’ will be paid to the employee and does not reduce any SG liability.
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THE EXCEPTIONS |
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There are a significant number of employees who will not be able to exercise choice of fund as at 1 July 2005 . Examples of those employees include:
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Employees covered by a State Award where a particular superannuation fund is specified |
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Employees covered by an Australian Workplace Agreement or certified agreement where a particular superannuation fund is specified |
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Government employees who are members of an unfunded public sector scheme |
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Government employees who are members of the CSS or the PSS |
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Certain Victorian employees who are covered by an agreement in force under the Employee Relations Act 1992 |
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Some members of defined benefit funds |
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CHOICE OF FUND – THE PROCESS |
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Unless included in the exceptions above, an employer must give a standard choice form to:
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All existing employees, and |
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All new employees within 28 days of commencing employment |
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If the employee elects to choose a fund, they must provide their employer with contact details and other prescribed information in relation to the fund. The chosen fund must be an ‘eligible choice fund’ which will generally be a complying superannuation fund or scheme and may also be a retirement savings account (RSA).
An employer will only be able to reject an employee’s fund choice where:
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The employer does not have evidence that it can make employer contributions to the fund; or |
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The employee has not provided sufficient details of the fund to the employer; or |
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The employee has already chosen another fund within the last 12 months (ie. employees can only pick a new chosen fund at least 12 months after a previous choice) |
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If an employee does not make a choice, then their SG payments will be made into the employer’s ‘default fund’. The default fund must be an eligible choice fund and must also comply with other criteria that will include certain minimum levels of insurance arrangements (see below).
The Government has produced the final set of Regulations. The following points are worth noting:
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Content of the standard choice form |
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This form is just two pages long. It includes the necessary information that will impact an employee’s choice decision including insurance, fees, investment options and services. It also indicates what the 'default fund' is and highlights the possibility that the choice of a new fund over the default fund could result in a reduction in employer contributions. |
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Minimum level of life insurance to be offered |
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The Regulations provide for a choice between a minimum cost of cover ($0.50 pw) or minimum amount of death cover (as per the table below) for employees up to age 56. Retirement Savings Accounts are exempted from having to provide any cover. |
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MINIMUM AMOUNT OF COVER PER AGE GROUP |
Age range |
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Level of insurance
in respect of death |
from 20 to 34 |
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$50,000 |
from 35 to 39 |
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$35,000 |
from 40 to 44 |
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$20,000 |
from 45 to 49 |
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$14,000 |
from 50 to 55 |
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$7,000 |
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CHOICE OF SUPERANNUATION FUND |
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While it has always been the intention to limit the burden on employers, in reality they will play an integral role in the whole process from the selection of an appropriate default fund, producing the requisite documentation for employees and distributing employer contributions out to numerous different superannuation funds.
This last point may well be the most significant for employers and especially those small to medium employers without access to electronic transfer means. In the absence of a cost-effective and efficient transfer protocol, it may be that the process of sending employer contributions by various means to many different superannuation funds will quickly become annoying for some employers.
More information from the ATO's Superchoice website
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