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Employer super issues

Choice of fund

Section: 1.5

Many employees are able to choose the complying super fund to which their employer must direct SG contributions. Choice of fund legislation requires a new eligible employee who commences work to be offered choice of fund (by the employer providing them with a standard choice form).

Who may choose their own fund?

An employee is eligible to choose their own superannuation fund where they are:

  • employed under a federal award
  • employed under a former state award, now known as a notional agreement preserving state award (NAPSA) 
  • employed under an award or industrial agreement that does not require super contributions
  • not employed under any state award or industrial agreement (including contractors who are regarded as eligible employees for super purposes).

Not all employees must be given a choice. The legislation specifically excludes:

  • employees covered by a range of employment agreements that specify a super fund
  • government employees in unfunded public sector super schemes
  • government employees who are members of the Commonwealth Superannuation Scheme (CSS) or the Public Sector Superannuation Scheme (PSS), other than PSSAP members
  • employees who remain a member of a defined benefit fund that is in surplus or who have accrued their maximum benefit.

The employers of individuals covered by these exclusions may be able to make contributions according to the relevant award, agreement, legislation or trust deed and still comply with the super choice rules. This will be determined by the wording of the particular instrument. Employers should seek legal advice from a workplace or industrial relations lawyer.

Proposed legislation

A Bill had been introduced to Parliament in September 2017, which had not passed both houses prior to the 2019 Federal election being called. This means this Bill lapsed and the proposal is not proceeding. The amendments that had been proposed were to provide choice of fund for employees where they are employed under a workplace determination or enterprise agreement made on or after 1 July 2018. Employees employed under, or in accordance with, a workplace determination or enterprise agreement made before 1 July 2018 would have continued to be denied a choice of fund for their compulsory superannuation contributions. This proposal did not proceed.

What contributions does choice cover?

Choice of fund only applies to an employer's SG contributions from 1 July 2005. Legally, an employer does not have to extend choice of fund to cover salary sacrifice or other voluntary employer contributions in excess of their SG obligations, but for practical purposes, many choose to do so.

Choice of fund also has no impact on member's existing super balances. However, the portability rules provide an equivalent mechanism for most members to choose in which complying fund their existing super balance will be held.

Which super funds can be chosen?

Any complying super fund or RSA can be chosen by an employee - this is an unlimited choice regime. The fund could include an in-house corporate fund, a corporate master trust, a retail personal fund, an industry fund, a super wrap or master trust, an SMSF, or a small APRA fund. The only requirement is that it must be willing to accept contributions from the person's employer.

How and when can an employee choose their fund?

An employee can choose a fund in two ways:

  • by responding in writing to a 'standard choice form' given to them by their employer, or
  • by providing a written notice to their employer requesting that contributions are made to the employee's chosen fund.

The standard choice form must be provided by an employer within 28 days of a new employee commencing employment. It must state that the employee may choose any complying fund and include the name of the employer's default fund plus any additional information required under the regulations. The employee's written notice must set out the contact details for their chosen fund, evidence that the fund trustee will accept contributions and any other information required by the regulations.

An eligible employee can exercise choice of fund (including changing a previous choice of fund nomination) at any time. However, the employer is not required to accept the employee's choice if they have already chosen a fund within the last 12 months.

What happens if a person doesn't make a choice?

If an employee doesn't make a choice, the employer must direct SG contributions instead to its 'default fund'. This fund must be specified on any standard choice forms provided by the employer to its employees.

Circumstances in which an employer may reject an employee's choice

There are two circumstances where an employer is able to reject a fund chosen by an employee:

  1. Where an employee fails to provide all required information (ie the written notice and a written statement setting out contact details for the fund), any other prescribed information and written evidence that the fund will accept contributions made by the employer.
  2. Where the employee has already chosen a fund within the last 12 months.

Will an employer be liable for the choices made by employees?

No. The legislation specifically removes any liability from an employer in relation to complying with the choice of fund rules. The requirements for minimum insurance cover in the default fund and an enhanced disclosure regime address these aspects. Employers should be careful not to inadvertently provide financial advice or do anything outside their obligations to comply with choice of fund, otherwise this protection will not apply.

What are the penalties for the employer not complying with choice of fund?

An employer who fails to offer a choice to employees or who contributes to a fund other than one chosen by an employee will be subject to a financial penalty. This penalty affects an employer's super guarantee shortfall amount.

Last modified: Wednesday, July 24, 2019