Choice of fund
Many employees now have the right to choose which superannuation fund or retirement savings account will receive their Superannuation Guarantee (SG) contributions.
As an employer, you need to ensure that you meet your obligations to inform your employees of their options.
There are four steps you can follow to meet your Choice of Fund superannuation obligations:
- – identify your eligible employees
- – nominate a default fund
- – provide a Standard Choice form to your employees
- – act on your employees choice
Step 1 - identify eligible employees
You only need to offer choice of superannuation fund to your employees if they are eligible. An employee is eligible for Choice of Fund if they are:
- covered by Federal awards
- not covered by any award or registered agreement
- covered by State awards whose employers are constitutional corporations
Choice of Fund generally will not impact upon employees who are:
- covered by Federal Certified Agreements, Australian Workplace Agreements or State Agreements prior to 27 March 2006, or Workplace Agreements from 27 March 2006 that provide for the superannuation fund(s) that the employer makes payments into
- involved in certain Defined Benefit funds
- involved in certain public sector funds covered by certain agreements under the Victorian EmployeeRelations Act (1992) covered by State Awards where their employer is not a constitutional corporation
An ATO fact sheet to help employers determine Choice of Fund eligibility for their employees is available at ‘How to determine if your employees are eligible’.
Step 2 – choosing a default fund
Employers must choose the workplace default fund for employees who don’t return a completed Standard Choice form. This is the fund into which you will make their Superannuation Guarantee (SG) payments.
How do I choose the default fund?
A default fund is a fund stated in the employee’s award, or if an award doesn’t apply you are required to choose an eligible default fund.If the award nominates a number of funds, you are required
to choose one of the listed funds as the default fund.
The default fund process does not apply to employees who have previously provided written advice about their superannuation fund.
An eligible ‘default fund’ is a complying
superannuation fund that offers a minimum standard of life insurance cover. Download HIP’s Letter of Compliance.
Step 3 - provide a Standard Choice form
You have to provide the Standard Choice form to your new eligible employees within 28 days from the day they start working for you.
For new employees
You only have to provide a Standard Choice form to a new employee when they first commence employment. This means you are not required to provide a Standard Choice form to the same employee if they commence employment again. For example, casual or itinerant workers who you employ for busy periods or at the same time each year.
Existing and eligible employees
However, you will have to provide another Standard Choice Form to your eligible employees:
- within 28 days of an eligible employee requesting a form in writing (you do not have to give them a form if you have already given them one in the previous 12 months)
- within 28 days of becoming aware that you are unable to contribute to an employee's chosen fund or that it is no longer a complying fund within 28 days of changing your employer fund.
There is no limit to the number of times an employee can choose a superannuation fund. However, you have to act on only one choice every 12 months.
Details of your chosen default fund must be included in the Standard Choice form.
Step 4 – act on your employees’ choice
Upon receiving a Standard Choice form from an eligible employee you must:
- write to the employee confirming you have received their Standard Choice form
- check the form is complete and accurate (must be signed and dated by the employee) be satisfied yourself that the employee’s nominated fund is a complying fund, subject to the above, you then have 60 days in which to enrol the employee in their nominated fund.
The frequency of the contribution payments may depend on an industrial arrangement or requirements of the nominated fund.
While contributions are normally required to be paid within 28 days of the end of each quarter, many funds and industrial agreements may require contributions to be paid on a monthly basis.
Keep the necessary records
You must keep records showing:
- you have offered Choice of Fund to your eligible employees and provided them with a Standard Choice form
- how that you have acted on your employees’ Choice of Fund, and that the form contains information about your employer fund
Your Choice of Fund records must be in English and be kept for 5 years. If your records are not in a written form (for example, in an electronic medium such as magnetic tape or computer disk), it must be in a form that is readily accessible and easily converted into written English.
Understand the penalties
If you don’t meet your Choice of Superannuation Fund obligations, you may be liable for the choice shortfall charge. The choice shortfall is part of the Superannuation Guarantee charge.
When will the choice shortfall charge apply?
The choice shortfall charge applies where you have paid superannuation guarantee contributions to a complying fund for your employee, but not to the fund chosen by them. It may also apply if you have not given your employees a Standard Choice form in the required timeframe.
How much is the penalty?
The choice shortfall charge is roughly 25% of the contributions that are paid to the wrong fund capped up to $500 for a notice period per employee.
For example, if the choice shortfall charge for an employee for a quarter is $1,000, the actual shortfall can be no more than $500.
How do you avoid the shortfall?
To avoid the choice shortfall charge it is essential that you pay sufficient superannuation contributions to the chosen fund or, where no chosen fund exists, to the fund you identified on the Standard Choice form.
What is the notice period?
Your notice period for an employee will start; on the day you first employ an employee when the preceding notice period has ended
A notice period will end once the Tax Office gives you written notice that the notice period for the employee has ended. A notice period can consist of multiple quarters.
Important note: Unless you hold an Australian Financial Services License (AFSL), or are an authorised representative of an organisation that holds an AFSL, you cannot recommend any financial products or give advice about any superannuation funds.
Breaches of the relevant legislation could expose employers to hefty fines and/or imprisonment.
Any person wanting advice about financial products should seek advice from an Australian Financial Services licensee or an authorised representative of a Licensee.