WHAT IS SUPER CHOICE?
The trick to understanding super choice is knowing what it is, and what it isn't
Put simply, super choice is all about allowing employees to choose the MySuper product or super fund they prefer rather than being forced to use one chosen by someone else such as their employer, industrial award or workplace agreement.
How super choice affects your company
Super choice gives employees the option to leave the default MySuper product or fund that was chosen for them and go to another MySuper product or fund, but only if they want to. Always remember that the whole point is that they have a choice.
This doesn't mean they have to choose or that they even have to look at other options, and it definitely doesn't mean they need to assume there is something wrong with their employer's default MySuper product.
But equally it 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.
And if an employee decides to exercise their rights under super choice and join a different fund, those super funds aren't allowed to force the employer to become a "participating" or registered employer of that fund. This means that if the employee chooses a fund that requires such employer registration then the employer has the right to refuse to be involved with that fund.
Does super choice apply to your employees?
Super choice doesn't apply to everyone. But if you or your employer are not in the following categories, then you should be free to choose your own My Super product or super fund:
||Most members of defined-benefit super funds whether run by private companies or government agencies.
||People who are employed under state awards, although this exemption doesn't always apply.
||People who are covered by particular workplace and certified agreements that locks-in a particular default fund.
How companies choose default MySuper products
Under super choice, employers have to ask their employees at least once a year what MySuper product or super fund they would like to have their super contributions sent to. To help employers handle this, the Australian Taxation Office (ATO) has designed a form for employers to hand to employees so they can nominate their preferred super fund.
A copy of this form is available on the ATO and SelectingSuper websites.
- If an employee decides to exercise their rights under super choice and join a different fund, those super funds aren't allowed to force the employer to become a "participating" or registered employer of that fund.
- If an employee wants to choose a MySuper product or fund other than the default, it's not the employer's job to sort out their membership details.
If an employee does not return the form to the employer, the employer should keep sending super contributions to the MySuper product or fund they are already using. But if an employee wants to use another MySuper product or fund, it is very important they complete the form properly and hand it to the employer within reasonable time.
As a fail-safe, the government has asked employers who are subject to super choice to nominate a default MySuper product or fund that will be used if an
employee does not nominate an alternative choice. This alternative choice is referred to as nominating a 'choice' fund.
While there are lots of guidelines about how super choice works, there are no guidelines about what funds should be chosen because from the government's perspective the whole point of super choice is the act of choosing, not what the employees actually choose. This is why employers should not let themselves get tricked by management consultants into thinking super choice is complicated. Nonetheless, there are two important principles every employer must follow:
||They should only send superannuation contributions to funds registered as complying with the superannuation regulator, the Australian Prudential Regulation Authority (APRA).
||The employer's default fund must have a minimum level of insurance cover, as shown in the table in this article.
Above all, because super choice is that, a choice, it's not an employer's responsibility to organise the employee's membership of the non-default or 'choice' fund, meaning that if an employee wants to choose a MySuper product or fund other than the default, it's their job to sort out their membership details
|Minimum life insurance for default super funds
|Age group of employees
||Life insurance cover
|20 - 34
|35 - 39
|40 - 44
|45 - 49
|50 - 55
A process, not a result
By now we know the main responsibility of the employer under super choice is choosing their workplace's default MySuper product or fund, but how do they do this? The general principle is that they can involve their employees as much or as little as they wish. 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 rules can make things easier for employers, it also means they have to tread carefully because if, for example, 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 funds should be nominated for the vote or how the votes should be counted.
It is also absolutely imperative that employers provide no tips or recommendations to their employees about super funds because doing so means they are in effect providing financial advice and to do that the law says they must be licensed to give this type of advice.
In practice this means that when an employer chooses their default MySuper product or fund they should make sure they can reasonably explain how they made their choice. This doesn't mean they need complex systems, procedures or expensive consultants but they should be able to explain in common sense terms how they came to their decision.