Employee Superannuation Choice FAQ

When does employee choice start
Who will be able to choose their fund?
What contributions does it cover?
Which superannuation funds can be chosen?
How does an employee choose their superannuation fund?
What happens if a person doesn't make a choice?
Are their conditions on the default super fund?
Will an employer who contributes under a lower notional earnings have to contribute more under employee choice?
What are the penalties for the employer for non compliance with employee choice?
Does employee choice also apply to an employee's existing super benefit?
Will an employer be liable for the choices made by employees?

When does it start?
Employee choice legislation takes effect on July 1 2005. By 29 July 2005, eligible employees will have to be offered a choice of supeannuationr fund by their employer. After that, whenever a new employee who is eligible commences work, must be offered a choice by their employer within 28 days. Following this, an employee can choose a superannuation fund once each year.

Who will be able to choose their fund?
Not all employees must be given a choice. The new legislation specifically excludes:
Employees covered by a State Award that specifies a super fund.
Employees covered by a Certified Agreement that specifies a super fund
Employees covered by a Workplace Agreement that specifies a super fund
Government employees in unfunded public sector super schemes
Government employees who are members of the CSS or the PSS, until additional legislation is passed to give them a choice as well
Employees covered by an employment agreement in force under the Victorian Employee Relations ACT 1992
Employees who remain a member of a defined benefit fund that is surplus or who have accrued their maximum benefit
The employers of individuals covered by these exclusions will be able to make contributions under the relevant Award, agreement etc. and still be in compliance with the choice rules. It is estimated that approximately 4.8 millions working Australians or half the workforce will be able to choose their own fund.

What contributions does it cover?
Choice of fund only applies to an employer’s future superannuation guarantee contributions. From July 1 2005, not only will an employer have to make the necessary 9% contributions each quarter, but will also have to do so in compliance with the choice rules. This means allowing employees to choose their own fund and then making contributions in accordance with the employee’s choice. Legally, an employer does not have to extend choice to cover salary sacrifice or voluntary employer contributions in excess of their SG contributions, but for practical purposes, many may choose to do so.

Which funds can be chosen?
An employee can choose any complying superannuation fund or retirement savings account. 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 superannuation wrap or master trust, or a self managed super or small APRA fund. The only requirement is that it must be willing to accept contributions from the person’s employers. Back to top

How does 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
An employer must provide the standard choice form by 29 July 2005 or within 28 days of a new employee commencing employment. It must state that the employee may choose any 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 will accept contributions and any other information required by the regulations. Back to top

What happens if a person doesn’t make a choice?
If an employee doesn’t make a choice or chooses a fund that the employer cannot contribute to then the employer can make contributions to a default fund. The default fund is one that is selected by the employer. Back to top

Are their conditions on the default fund?
Yes. While the employer can choose any complying fund as the default, it must be one that provides the minimum level of death only life insurance cover to its members. The characteristics and amount of this insurance cover will be dealt in future legislation following industry consultation. Back to top

Will an employer who contributes under a lower notional earnings base have to contribute more under choice?
No. There are provisions in the new legislation that ensure an employer can maintain a notional earnings base lower than an employee’s ordinary time earnings, if this is supported by the employers current super arrangements. Additional legislation has been passed to bring all employers into line regarding earnings bases for SG purposes. From July 1 2008, all employers will have to use employee’s ordinary time earnings as the means of calculating their 9% SG liability. Back to top

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. The amount of this penalty will be effectively 25% of any contributions made to a fund other than one chosen by an employee, up to a maximum of $500 per employee per quarter. Like the existing SG penalties, this extra amount will be collected by the ATO and paid to the fund of the relevant employee, and will not be tax deductible to the employer. Back to top

Does choice also apply to an employee’s existing super benefit?
No. Choice only applies to contributions made by an employer after July 2005; it does not apply to amounts already contributed on behalf of an employee. Instead the new portability rules cover existing benefits. From July 1 2004 an employee with an inactive accumulation super account will be able to request a transfer to the fund of their choice. It is mandatory for all but self managed funds, unfunded public sector schemes and defined benefit funds to comply with such a request. An account will be inactive once no employer contributions have been made for six months. Therefore an employee chooses a new fund for their employer’s SG contributions, they may have to wait six months until their old account becomes inactive before being able to transfer it to the fund of their choice under portability rules. Back to top

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 following the introduction of the FSRA address some of the potentially contentious aspects of the choice regime. Back to top

To find out how we can streamline employee choice for your business please contact us on 1300792258 or email, payroll@gridpay.com.au