Super choice has been running for more than a year now but some employers are still confused by how they should handle it. However, they don’t need to be as its really quite simple. The trick is understanding what super choice is, and what it isn’t.
By Christopher Page

KEY POINTS
Super choice means employees don't have to join or stay in the super fund chosen by their employer or union. Super choice doesn't apply to everyone; at least not yet. Under super choice, each employer has to choose a default super fund, and they must use this fund for each employee's super contributions unless the employee tells them otherwise. It’s not the employer's job to arrange for an employee to be a member of a super fund they wish to have their contributions paid into. It’s every employee’s job to select a super fund that the employer can easily deal with.

Super choice has been up and running for more than a year now. But what exactly is super choice? How does it work? Will it affect your company? Do you need to do anything? Which fund should you choose for your employees?

Super choice is simply about allowing employees to choose the super fund they prefer, rather than having to be in a fund someone else chose for them. Most employees are currently members of super funds that were chosen by their employers or that are stipulated in their industrial awards or workplace agreements.

Because not all employees have the same superannuation and investment needs, no single super fund may suit every employee in the one company, and this is why having a choice of super funds can make sense. For example, some employees will be different ages with different times to retirement, have already saved different superannuation amounts, prefer different types of investments, have varying amounts of superannuation knowledge, be comfortable with differing levels of investment risk, and have different insurance needs.

How it affects your company

Super choice simply gives employees the option to leave the fund that was chosen for them and go to another fund, if they wish. Super choice doesn't require them to switch funds, and it doesn't even encourage them to switch funds. Instead, it just gives them the choice.

Most importantly, this doesn't mean the super fund employees are already using is bad and that they should switch, but because they may not have chosen the fund themselves, maybe they would prefer to be in a fund that they did choose. This can also mean that if they like their current super fund, then they should stay there. They are not required to move or do anything at all. And don't be fooled into thinking they have to choose by any particular deadline either. There is no time limit to choose or do anything because they can invoke their right to choose whenever they want, though some employers like their employees to make only one choice each year.
Super choice is therefore just about giving employees the right to choose. It's no more complicated than that.

The flipside however, is that super choice doesn't mean employees can choose any super fund they want either. They have to already be a member of the super fund they choose, and it has to be willing to accept their super contributions, without difficulty, from their employer.

Does it apply to your employees?

Super choice doesn't apply to everyone; at least not yet. But if you or your employer are not in the following categories, then you should be free to choose your own super fund:

• Most members of defined-benefit super funds, including Commonwealth public sector employees who are members of the PSS and CSS. (For details on what a defined-benefit super fund is, see the article called 'Different types of super funds'.)
• People who are employed under state awards, though in July 2007 this exemptions will no longer apply.
• People who are covered by particular workplace and certified agreement established prior to March 2006 where a specific super fund has been nominated.

So in broad terms, super choice is coming to get you. Sure, when it started it really only applied to people employed under a federal award, who did not work in the public sector, or who were not members of a defined-benefit super fund, but from this starting point it is now reaching out across the whole workforce.
This is why even if super choice technically doesn't apply to you or your employer, many employers are moving to allow their employees to choose their own super fund anyway.

How companies choose their default superfund

Under super choice, employers have to ask their employees at least once a year what super fund they would like to have their super contributions sent to. To help employers handle this, the Australian Taxation Office has designed a form for employ to hand to employees so they can nominate their preferred super fund.
If an employee does not return the form to the employer, the employer should simply keep sending super contributions to the fund they are already using. But if an employee wants to use another fund, it is very important they complete the form properly and hand it to the employer within the given time.

As a fail safe, the government has asked employers who are subject to super choice to nominate a super fund that will be used if an employee does not nominate an alternative super fund or does not return the super choice form. This super fund is called the employer's 'default' super fund. If an employee nominates a super fund other than the employer's default fund, then this is referred to as nominating a 'choice' fund.

Ironically, while there are lots of guidelines about how to run super choice, there are almost no guidelines about what funds should be chosen – obviously because from the Government’s view the whole point of super choice is the choosing itself, not what the employees choose. But this is also why employers need to not let themselves get tricked into thinking super choice is complicated.

Nonetheless, two important guidelines every employer must follow is they should only send contributions to funds registered as complying with the superannuation regulator, the Australian Prudential Regulation Authority (APRA), and that the default fund must have a minimum level of insurance cover. Employers should also realise that it’s not their responsibility to organise the fund membership for a non-default or ‘choice’ fund, meaning that if an employee wants to use a fund other than the default fund its the employee’s job to make sure they are a member.

This also means that unless the employees fill in their super choice form properly then they will stay with the default super fund. In other words, the super choice administrative burden on getting things right is on the employee, not the employer.
For employees wanting to choose a non-default fund they have to provide to their employer the following information about the fund they are choosing:

• a letter from the fund confirming that the fund is a complying fund
• proof that they are a member of the fund
• details about how the employer can or should send your superannuation contributions

While this might sound complicated, the good news is that all quality super funds should have this information easily available on their website (and remember that the bad ones won’t, which is not a good sign if your preferred fund is one of these). Members can also contact their fund’s call centre for more details.

Minimum Life Insurance for Default Super Funds

Age group of employees	Life insurance cover
20 - 34	$50,000
35 - 39	$35,000
40 - 44	$20,000
45 - 49	$14,000
50 - 55	$7,000

Source: Rainmaker Information

Choice is a process, not a result

By now we know the main responsibility of the employer under super choice is choosing the default fund. But how do they do this? While there are no specific rules, the general principle is that they can involve their employees as much or as little as they wish in choosing this fund. They can hold a vote among employees to see which fund they prefer, they can choose the fund that is already specified in the award, they can simply keep using the fund they currently use, or they can even choose a fund at random.

This means that provided the fund is a complying fund and offers the minimum standard level of death insurance (though this minimum insurance standard is so low that just about every quality super fund will easily meet it), then employers and their employees can choose almost any fund they want.

But while having no onerous rules can make things easier for employers, it also means they have to tread carefully. For example, if an employer decides to hold a vote to choose the default super fund, one potential problem is that there are no rules for how these votes should be handled. How do you choose which funds to vote on? Can anyone nominate a fund, do you all have to agree on a short list? How do you choose this short list in the first place? Is the most popular fund the winner, or is 50 per cent or more support required? Does the employer have to explain how each of the super funds being voted on is different? And what if the vote doesn't result in a clear winner?

It is however absolutely imperative that employers provide no tips or recommendations to their employees about super funds. This is because to do so means they are effectively providing financial advice, and to do that the law says they must be licensed. This means that even if an employer is trying to help their employees make a good choice by letting representatives from individual super funds, or even financial advisers, come and talk to the staff about super and why they should use their fund or advisory company, this in itself may be seen as de facto advice because it's indirectly pushing employees down a particular road. It’s almost Catch-22.

Employers though would be well advised to not rely too much upon the Government's promise to protect them from liability problems under super choice. This is because it is unclear if this protection applies no matter what, or only if they acted in good faith and conducted due diligence checks under theirfiduciary care responsibilities?

So if you are an employer, when you choose your default fund, just make sure that you have some structure and method in how you made the choice. This doesn't mean you need complex systems or procedures or expensive consultants, but it does mean you should be able to explain how you came to the decision. If employers think of super choice as being a process for how they let their employees choose their own super fund and how they chose the default fund rather than being the end game of what the actual default fund is, then they will have a big head start on other employers who are getting unnecessarily tangled up with super choice.

What employees should do

If any employees do not want to use the default fund then they are free to choose another fund. That's the whole point of super choice.
This also means no one needs to get into arguments about the default fund because if an employee doesn't like the default fund then all they have to do is dump it and choose a fund they do like. Employees can even choose your own small self-managed super fund (SMSF, or 'DIY' fund, as they're often known).
If you are an employee you should however try to understand the situation from your employer's perspective. They probably chose their default fund because they thought it would be a good back-up fund for most of their employees. This doesn't mean they expect everybody to use it, or that they expect it will meet the superannuation needs of every employee. It is after all just the 'default'.

But you also need to realise that your employer doesn’t have to send your super contributions to a fund just because you told them to. Remember, that if the super fund you want your super contributions to go to has quirky rules that your employer has to deal with, then your employer is under no obligation to use that fund for you. These quirky rules include such things as the employer having to register as a 'participating employer', having to fill in lots of complicated forms, or having to set up unusual payroll administration arrangements just because the fund has an out-of-date contributions transaction system. In such a case, employers are well within their rights to just keep sending the super contributions to the default fund.

A great way for employees to avoid this problem is to choose a super fund that is 'public offer' (that is, the fund can accept contributions from members of the public). This means that the employer doesn't have to register with it because employees can join as an individual. The good thing about these types of funds is they usually have up-to-date contribution transaction processing systems and this should make most payroll teams very happy.
To find out more about public offer funds, see the article on 'Different types of super funds'.

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