Employers will face new administrative responsibilities and additional legal risks following the introduction this week of superannuation choice, which allows most employees to select their own superannuation fund.
Employers will face new administrative responsibilities and additional legal risks following the introduction this week of superannuation choice, which allows most employees to select their own superannuation fund.
The Federal Government has been running an education and promotion campaign to raise awareness of super choice but industry advisers are concerned some businesses are still not fully prepared for the change.
Assistant Treasurer Mal Brough has hailed the change as a major step forward.
“From the first of July this year, around five million workers will be free to choose their own superannuation fund rather than have it dictated by their employer,” he said.
It remains unclear how many employees will take up the option to select their own fund.
A recent survey by Mercer Wealth Solutions found that 16 per cent of people have a clear intention to switch super funds and a further 7 per cent are giving consideration to changing funds.
West Coast Group director Adrienne Heal said experience in WA, where employees on state awards had been offered choice since 1995, was that only about 8 per cent of workers would switch funds.
Irrespective of whether any staff members want to take up the choice option, employers must still provide the relevant paperwork to their employees and must select a default fund.
Ms Heal said all employers should have reviewed their current arrangements to ensure they had an appropriate default fund, which would be used by all staff who did not exercise choice.
Employers also need to update their payroll systems to accommodate payments to multiple super funds.
Ms Heal said most of the big super funds were setting up a clearing house so they could distribute contributions to a range of different funds, and this was fast becoming a standard service feature.
HLB Mann Judd partner Peter Speechley has warned that employers cannot offer advice to their staff, even if they want to encourage all staff to use the default fund in order to reduce administration costs.
“It could be very easy for employers to allow their enthusiasm for the default fund to be construed as inappropriate investment advice when trying to persuade employees that it is a good fund to stay in,” he said.
Axis Financial Group chief executive Michael Jagiello has advised that employees do not have to do anything, and should carefully think through their options before making any change.
He said a key issue was the ability of employers to negotiate competitive insurance cover for members of their default fund.
“Fees, returns and investment options have been highlighted as critical factors, but specific knowledge of the employer’s benefits are likely to be more significant,” Mr Jagiello said.
SUPER TIPS
- Employers must select a default super fund.
- Staff must be given a super choice form by July 29.
- Employers are not allowed to give financial advice.
- Workers covered by certain workplace agreements are not affected.
- Super choice only applies to Superannuation Guarantee contributions.
