The introduction of Commonwealth legislation enabling employees to choose their superannuation fund has the potential to bring about significant changes to the way in which Australia’s $650 billion in superannuation savings is managed.  The Federal Government has estimated the legislative change will affect over 4.8 million employees.

All Australian employers will need to be aware of the new requirements, which come into effect on 1 July 2005.

WHAT ARE THE CHANGES?

At present employers can specify the fund into which employee contributions are paid unless an award specifies a particular fund or the employer allows the employee to nominate the fund.  Other than certain categories of excluded employees, the new legislative changes will enable employees to nominate the fund into which their employer makes compulsory superannuation guarantee contributions.

If the employee does not nominate a superannuation fund, the employer may make contributions to a complying fund of the employer’s choice.

WHO IS EXCLUDED FROM CHOICE?

Four main categories of employees will not be given the right to choose their superannuation fund:

• employees covered by a federal Australian Workplace Agreement (“AWA”) or Certified Agreement if such an agreement specifies a particular superannuation fund.  Such agreements currently cover about 16% of the private sector workforce;
• employees covered by a State Award or State Agreement that specifies a particular superannuation fund;
• certain public sector employees; and
• certain members of defined benefit schemes.

WHAT DOES AN EMPLOYER HAVE TO DO?

• employers must provide their eligible employees with a standard choice form by 29 July 2005 or within 28 days of a new employee commencing employment;
• the standard choice form must be in writing and contain the following information;
• a statement that the employee may choose any eligible fund for their superannuation contributions;
• state the name of the default fund should the employee not make a choice; and
• any other information required by the regulations from time to time.

If an employee wants to exercise their choice they must provide their employer with details of the relevant fund and evidence that the fund will accept their contributions.

The superannuation fund chosen by an employee must become the fund to which contributions are made not more than two months after the employee has given notice to the employer. If an employee does not make a choice, or chooses a fund that the employer cannot contribute to, the employer can make contributions to the default fund.

HOW IS THE ‘DEFAULT FUND’ DETERMINED?

• the applicable default fund will depend upon whether the employee is covered by a Federal Award specifying a superannuation fund.
• in the event of Federal Award coverage, the employer must continue to pay contributions to the fund stipulated in the Award if the employee does not chose a different fund.
• if the employee is not covered by a Federal Award (specifying a particular fund), the employer may choose any eligible fund to be the default fund.

WHAT IF EMPLOYERS FAIL TO COMPLY?

Failure to make contributions in compliance with the legislation will incur a penalty equal to 25% of the quarterly superannuation guarantee contributions not made to the chosen fund.  This is subject to a cap, for each relevant period, of $500 per employee.

CHECKLIST FOR EMPLOYERS:

• Check whether your employees are eligible to choose their superannuation fund.
• If they are, make sure you provide them with a standard choice form by the required date(s).
• Review your default fund with your financial adviser.
• Review your administrative processes.
• Where relevant, offer employees assistance in choosing a fund.

Inevitably this legislative change will require employers to make contributions to a multiplicity of funds, with consequent additional record keeping requirements.  Some employers have signalled that they will consider entering into AWAs or Certified Agreements (that specify a fund) in order to minimise the additional administration requirements.

For more information on the legislation or agreements to avoid its effects please call Paul Cooley on (03) 9608 2238 or e-mail p.cooley@cornwalls.com.au.