How Choice Of Fund Works

From July 1 2005, many employers were required to offer their employees’ choice of super fund, or to confirm their membership with an existing fund.

 Choice of fund continues to have a significant impact on the retirement savings of Australian workers. It is estimated that 40% of workers are affected.

However, not everyone has to make a choice.

Employees will not have a choice if:

• They are covered by state awards, certified agreements or AWAs that specify the fund or funds where contributions are to be paid;  
• They are members of Commonwealth and state public sector funds; or  
• They are members of defined benefit funds.  

Employers had until July 29, 2005 to give each exisitng employee a “standard choice form”. New employees must be given this form within 28 days of starting work. An employee can also request a form at any time, as long as it has been at least 12 months since the last request.

The form will: 

• Advise employees that they are able to choose their super fund; and  
• Name the default fund, if no choice is made.

If employees do not make a choice, but are covered by a federal award that names a super fund, then contributions will be paid into that fund.  

If an award does not cover the employee, then the employer chooses a default fund where contributions will be paid. 

The choice legislation will not improve the retirement income of Australian workers and there is still some danger that it will have the opposite effect.

ACTU Concerns

• Mis-selling by financial planners seeking to earn a commission.  

Faced with making a choice of super fund, people may rely on financial planners for advice. Banks and retail super funds are able to employ financial planners to sell their products on a commission basis. Commissions come out of workers’ super accounts and can have a huge impact on the final balance. These advisers do not recommend industry funds because industry funds will not pay them a commission.

•  Inadequate fee disclosure.

Super funds will only be required to disclose the fees charged in the first year. This is likely to lead to retail funds offering honeymoon rates in the first year and then charging higher fees in subsequent years. Industry funds charge a flat administration fee of between $1 and $1.50 per week and lower management fees than typical retail funds. 

• Choice of fund allows employers to choose the “default fund” that contributions are paid into.  

If employees do not make a choice, then the employer will control where their super contributions are paid. Employees could find themselves in more expensive and/or lower-performing retail funds.

•  A lack of interest and knowledge about super among employees.

 There are 2.7 million Australians (one third of the workforce) with over $7 billion of unclaimed super.

Action

To properly protect members, unions must take action. They should: 

• Make sure that the relevant industry fund is named as the default fund in federal awards.
•  Include relevant superannuation clauses in certified agreements and state awards.  
• Support industry fund strategies for non-union workplaces. 
• Organise information sessions for workers with industry funds.

 The Industry Fund Choice - ACTU's Choice of Super Fund Flyer - Protecting the superannuation entitlements of union members is a priority of the ACTU. As of 1 July, choice of super fund is now a reality and the ACTU has produced a flyer that explains the legislation, what it means for union members and how to get the most from your superannuation dollar.

For more information see:

The Australian Investment and Securities Commission – Choice of Superannuation Fund Guidelines 

The Association of Superannuation Funds of Australia – Super Guru

The ACTU has produced a new superannuation resource.

Click on the link below to see the ACTU's new superannuation booklet, "Make sure Industry Super Funds are in all EBAs".

Large PDF files may take a long time to open, depending on the speed of your internet connection. If you have difficulty opening this PDF file, contact the ACTU Super Hotline on 1300 362 223 to order a hard copy.