Employer super issues
Default super funds
Where an eligible employee has not exercised choice of fund, the employer must pay their SG contributions to an eligible default super fund. Contributions that are directed to a fund other than either an employee's chosen fund or the employer's default fund will not count towards meeting an employer's SG obligations.
Even if all existing employees have exercised choice of fund an employer needs to have an eligible default fund in case any contributions are returned to the employer. Additionally, the employer must state the name and other required details of its default fund on the standard choice form it must give to every new employee within 28 days of employment commencing.
Eligible default funds
To qualify as an eligible default fund, a superannuation fund must:
- offer a minimum level of death cover, and
- offer a MySuper product.
While the employer meets their SG obligations by paying to an eligible default fund (unless choice has been exercised), it is the super fund trustee's responsibility to allocate any contributions received (including SG and other employer or personal contributions) to the fund's MySuper product unless the employee has elected otherwise in writing.
Minimum life insurance requirements
An employer's eligible default fund must offer a minimum level of death cover at a premium of at least 50 cents per week or an age-based benefit level of cover as shown in the following table.
|Age||Minimum level of death cover|
|56 or over||Nil|
Defined benefit schemes will meet the insurance requirements where they provide a death benefit with a future service component at least equal to the dollar levels of cover shown above.
There are a number of exceptions to the minimum life insurance requirement:
- Default fund contributions made by an employer under a Federal Award will automatically meet the insurance requirements, as will contributions by employers to RSAs and capital guaranteed funds.
- Insurance cover provided outside of super by an employer for an employee that is at least equal to the minimum level of cover required will satisfy the insurance requirement.
- If an employer cannot obtain insurance for an employee due to the employee's health, occupation or other circumstances determined by an insurer, then no minimum insurance is necessary.
- If an employee's super death benefit (insurance plus account balance) is at least $50,000 under the rules of the fund, the minimum insurance requirement does not apply.
|2018 Federal Budget Proposal
From 1 July 2019, the Government will change the insurance arrangements for certain categories of superannuation members. Insurance within superannuation will move from a default framework to being offered on an opt-in basis for:
At the time of writing, this proposal had been legislated.
What is a MySuper Product?
A MySuper product is a class of accumulation interest within a superannuation fund that meets a range of specific requirements for so-called 'disengaged' members in relation to their superannuation. MySuper products can be offered by superannuation funds from 1 July 2013, but are not required to be used for default SG contributions until 1 January 2014.
A super fund trustee may convert one of their existing investment options (eg their current default option) to be its MySuper product or could create a new MySuper product. Each super fund trustee can only offer one MySuper product, with two exceptions:
- Where maintaining a separate product will preserve existing corporate goodwill.
- Where a default fund is provided to a large employer (500 employees), a separate MySuper product can be offered to employees and former employees of the employer or its associates.
MySuper features and fees
MySuper products are required to include the following features:
- a single diversified investment strategy (which may be a 'lifecycle' strategy) must be provided with no member investment choice.
- all members holding an interest in the product must be offered the same options, benefits (except insurance) and facilities.
- there are generally no limits on the source or type of contributions that can be accepted.
- death and TPD cover must be provided to MySuper members on an opt-out basis, unless cost prohibitive or not available. While no minimum level of cover applies for TPD cover, funds must provide on an opt-out basis the minimum level of death cover in the above table to be an eligible default fund for SG purposes.
- members must consent to any rollover from the MySuper product, except where the rollover is to another MySuper product.
MySuper products are also limited to charging the following types of fees:
- administration fees
- investment fees
- buy-sell spreads (limited to cost recovery)
- switching fees (limited to cost recovery)
- exit fees (limited to cost recovery)
- activity fees (limited to cost recovery) - this fee type could be used to charge for the cost of family law super splits, setting up binding death benefit nominations, etc.
- advice fees (limited to cost recovery)
- insurance fees (limited to cost recovery)
|2018 Federal Budget Proposal
From 1 July 2019, the Government has announced it will introduce a 3% annual cap on investment and administration fees charged by superannuation funds on accounts with balances below $6,000. In addition, exit fees on all superannuation accounts will be banned from 1 July 2019.
At the time of writing, this proposal29 had not been legislated.
MySuper members are able to pay for the cost of financial advice relating to their interest by agreeing to pay an advice fee, which is deducted from their MySuper interest. It is important to note that trustees do not have to allow for advice fees to be charged.
Super fund trustees are also able to offer their MySuper members intra-fund advice, which is effectively paid by all MySuper members and funded through the administration fee of the MySuper product. Intra-fund advice can include any general advice, and some limited personal advice. However, personal advice given in the following situations cannot be intra-fund advice:
- advice to a non-fund member about whether to join the fund.
- advice about a financial product other than the fund (or a related pension or insurance product, or cash management facility).
- advice about consolidating multiple super funds into one fund.
- ongoing personal advice.
Plan service fees, which have historically been charged to fund members for advice provided to the employer sponsor of a super fund, are not permitted to be charged through MySuper products (note: plan service fees are also unable to be charged through other superannuation products from 1 July 2013). Advice to employers about these products will therefore likely need to be paid for by the employer.
Members of MySuper products must be charged fees on a non-discriminatory basis, which could include all members paying the same flat fee, a percentage based fee or a combination of both. Three exceptions to this rule apply:
- where an employer is able to secure a discounted administration fee, all members of the MySuper product who are employees of that employer are subject to the same discount.
- where a MySuper product includes a life-cycle investment option, each stage may have a separate investment fee, provided there are no more than four stages and all members of the same stage are charged on a non-discriminatory basis.
- where an advice fee is charged.
Transitioning of 'accrued default amounts' to MySuper
Super fund trustees (including those of existing employer default funds) must transfer any accrued default amounts to their MySuper product by no later than 1 July 2017.
If the super fund holding the accrued default amount does not offer a MySuper product, it must transfer the amount to another complying fund's MySuper product by that date.
Members can make a written election preventing their accrued default amount from being transferred. An accrued default amount is any amount invested for a member in the fund's default investment option, regardless of whether the member has actively chosen that option or been invested in it by default. However, accrued default amounts do not include:
- balances already held in a MySuper product
- defined benefit interests in a fund or benefits held in an eligible rollover fund.
- amounts invested in:
- cash investment options
- insurance only life policies
- capital guaranteed life insurance policies, eg annuities
- investment contracts held solely for the benefit of the member (and relatives or dependants), eg legacy products such as endowment and whole of life policies.
Income tax relief for MySyper transfers within a fund
Tax relief is currently provided for MySuper transfers into a different superfund, but not for transfers within the same fund. The government announced capital gains tax relief will be extended to MySuper transfers within a super fund, where the transfer is required by law. The law will apply retrospectively from 29 June 2015. To date no law has been introduced to Parliament.
Eligible default funds and modern awards
In addition to satisfying the eligible default fund requirements for SG purposes, an employer must also ensure that it complies with any default fund requirements that
apply to any modern awards or enterprise agreements that apply to the employee.
To prevent employers having to make contributions to two separate super funds to satisfy their obligations, from 1 January 2014 all super funds nominated as default funds in modern awards must generally offer a MySuper product. Any funds that have been previously nominated in such awards are no longer valid from this date.
Because of this change, the following types of super funds can be a valid default fund under a modern award:
- A super fund specifically nominated, which must offer a MySuper product.
- Any super fund that the employer had contributed to prior to 12 September 2008, which must offer a MySuper product.
- An exempt public sector superannuation scheme, which will not be able to and is not required to offer a MySuper product.
- A fund receiving only contributions in respect of defined benefit members.
Default funds nominated in new enterprise agreements approved by Fair Work Australia on or after 1 January 2014 must also offer a MySuper product, be an exempt public sector super scheme or be receiving contributions only in respect of defined benefit members.
Eligible default funds prior to 1 January 2014
Prior to 1 January 2014, an eligible default fund was required to offer a minimum level of death only insurance cover to its members (as required in the SGAA), but did not have to offer a MySuper product.
Where an employee was covered by a modern award, the employer must have also complied with any default superannuation fund requirements specified in that award, but there was no requirement that nominated default funds offer a MySuper product.
Last modified: Tuesday, November 20, 2018