Super Choice - the HR survival guide
For already stretched employers and their HR teams trying to make sense of yet more drastic change to superannuation rules, super choice presents some administrative and HR challenges.
By Alex Dunnin
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- Many employers now have to let employees choose their own super fund.
- Super choice has two elements for employers: administration and how to help employees choose.
- One way to avoid super choice administration headaches is to use a clearing house.
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Superannuation is getting interesting. Employees for the first now are able to chose the super fund they want to join rather than use the fund someone else chose for them. This slow revolution is called choice of super fund.
Super choice was introduced because ever since the previous government came to power in 1996 it wanted to open superannuation to more competition. Even though it took eight years for this to become law, super funds and employers read the writing on the wall and had been actively preparing for it for years. But its formal introduction still presented some challenges to employers and their HR teams.
First of all though, while there is much noise about what super choice will or won't achieve and how employees will or won't cope with it, employers and their HR teams should not get overwhelmed by super choice. Choice is simply about allowing employees to choose super funds they like rather than just the funds someone else likes.
In making sense of all the excitement there are two main perspectives. These are how employers administer choice and employers will handle employees wanting information and education about which super fund to choose. These two aspects are quite different and present quite different management challenges.
Administration concerns how employers will ask their employees to nominate their preferred funds, how your payroll systems will cope and what type of fund qualifies as a default fund. The information and education angle is much less tangible and because of this is more open ended and worrying for some employers. Perhaps not surprisingly, most of the super choice rules have concerned primarily the day to day administration issues and this has lead to only very few rules and guidelines for the more open-ended information and education aspects.
Administration
Administering super choice involves companies issuing super fund nomination forms to their workforce. In theory this seems easy enough, but as everything is always harder in practice the legislators expect we at SelectingSuper suggest there will be some HR heartaches.
SelectingSuper expects these heartaches to be practical and unglamorous ones such as what if employees don't return the form, will employers be able to identify which funds people actually mean, will a fund nominated by an employee actually accept the employee, and will payroll systems cope with sending super payments to large numbers of super funds?
If employees don't return the form then they will simply be assigned the company's default fund, which is simply the fund that the company has selected for employees who can't, won't, or are unable to decide on an alternative. In many cases the default fund will be the fund the company is using now.
For some employers that already have company super fund committees the task of choosing and monitoring the default super fund will not be a concern. But for companies with more diverse workforces spanning employees with very different financial needs and perhaps even spanning different industrial Awards and career structures the act of nominating a one-size-fits-all default fund can be much more controversial.
Reflecting this, at SelectingSuper we are already seeing companies have to effectively nominate a default default fund because they have several tribes of workers who currently use different default super funds. And this is despite their concerns that the task of assigning just one of these the official status of "company default" is an industrial relations flashpoint they would rather avoid.
Perhaps it is for these companies that the government has recently said that if employment contracts incorporate the provision that employees must choose their own super fund then those companies may be absolved from having formally nominate a default super fund.
If employees however choose a super fund other than the default fund then an administrative flow-on issue may be actually identifying which funds the employee means.
This can happen as sometimes super fund members can get confused between the name of their super fund and the name of its investment options.
To avoid this, employers may need to stipulate to their employees that they provide enough information to make finding and identifying the fund easy, eg the employee must supply its official name and superannuation identification number.
In following such a line employers should remember that most of the new super choice rules concern the default fund rather than other funds employees wish to choose.
This suggests employers have more scope to drive the administrative processes.
This in-turn leads to the question of whether a fund nominated by an employee will accept a super contribution on their behalf. This is a very important issue which SelectingSuper believes is not properly understood even by some in the superannuation industry.
This is because while super choice is about letting employees choose super funds other than the ones nominated by their employer, it is not about forcing all funds to accept contributions from all people.
For example, while we would all love to join the ludicrously generous Commonwealth Parliamentary Super Scheme, it only accepts you if you are a parliamentarian and so just because an employee nominates it doesn't mean you have to send it the contributions. Sure its an extreme example but you get my point.
A related hassle is that some funds, while welcoming new members from any employer, nonetheless require employers to register with them. But for some employers, even in a spirit of goodwill, this may not be practical (eg large employers or multi-national employers). And reflecting this, the previous government announced that employers will not be required to register with funds they don't want to register with and so the onus will be on employees to nominate funds that will accept them as individuals, meaning they may be restricted to either their own SMSF or "public offer" funds. How the new government will deal with this requirement is however not yet known.
The most practical consideration for an employer is the all important one of whether their payroll system will cope having to send superannuation payments to lots of different super funds. For large employers this can potentially be a nightmare as even a mid size employer with 200 employees will find that if even just 10 per cent of their workforce chooses a fund other than the company's default then they will be sending superannuation payments to 21 different super funds. For very large companies the numbers multiply so rapidly they may send payroll teams into catatonic shock.
There is an easy way to handle this though if the employer joins a clearing house service, which is an administration service that lets employers make a single superannuation payment on behalf of all their employees and the clearing house service handle the rest by distributing the payments to the different super funds on behalf of each individual employee.
But not all clearing houses are the same because some force the employer to use a particular fund as its default, which for some employers can defeat the purpose of why they want to use a clearing house. Responding to this, SelectingSuper is very soon to launch a clearing house that will accommodate any super fund regardless of what the default is and it even copes with employees wanting to nominate their own small self managed super fund as their preferred super fund.
Choosing, information and education
Regardless of how an employer actually administers super choice they will still need to plan for when employees start asking them about what super fund they should choose. This is because whether employers like it or not their employees are likely to think their employer knows something about super.
In saying this, we of course accept the provisions in the choice legislation that act to limit the employer's responsibilities and liabilities for employees who choose a bad super fund. But the real question is does this absolve the employer from all responsibility no matter what they do or only provided they acted constructively, reasonably, and in good faith?
The problem is that the boundary lines are yet to be defined and this means employers may be wise to act defensively by not favouring particular super funds and not pushing particular lines. Eg, Employers who invite a particular super fund on to their premises to conduct seminars about super choice may inadvertently be seen to be indirectly promoting that particular super fund.
A way around this of course is for employers to allow only non-aligned groups on to their premises or to ensure many different super funds get equal time (whether the latter is practical is another question though).
