A superannuation survival guide

While there’s a lot of noise about what super choice will or won’t achieve and how employees will or won’t cope with it, employers and their HR teams shouldn’t get overwhelmed by super choice. Choice is simply about allowing employees to choose super funds they like rather than just the funds someone else likes.

There are two main issues arising out of this: how employers administer choice and employers will handle employees wanting information and education about which super fund to choose. These two issues are quite different and present quite different management challenges.

Administration concerns how employers will ask their employees to nominate their preferred funds, how payroll systems will cope and what type of fund qualifies as a default fund. The other issue – information and education – is much less tangible and more worrying for some employers, due to its more open-ended nature.

Perhaps not surprisingly, most super choice rules affect day-to-day administration issues and as a result, very few rules and guidelines relate to more open-ended information and education issues.

Administration of super choice

In order to administer super choice, companies will have to issue super fund nomination forms to their workforces. In theory this sounds easy enough, but in practice this will be harder for some HR professionals.

These challenges will be of the practical and unglamorous nature, such as employees not returning forms, being able to identify which funds employees actually mean, whether a fund nominated by an employee will actually accept them and if payroll systems will cope with sending super payments to large numbers of super funds.

If employees don’t return the form then they will simply be assigned to the company’s default fund, which is the fund that the company has selected for employees who can’t, won’t or are unable to decide on an alternative. In many cases the default fund will be the fund the company is using now.

For some employers that already have company super fund committees, the task of choosing and monitoring the default super fund won’t be a concern. But for companies with more diverse workforces, where employees’ financial needs, industrial Awards and career structures vary considerably, the act of nominating a one-size-fits-all default fund could be much more controversial.

Already a number of companies are having to effectively nominate a ‘default default’ fund due to several groups of workers who currently use different default super funds. This is despite their concerns that the task of assigning just one of these the official status of ‘company default’ is an industrial relations flashpoint they would rather avoid.

Incidentally, the Government recently stated that if employment contracts incorporate the provision that employees must choose their own super fund then those companies may be absolved from having to formally nominate a default super fund.

However, if employees choose a super fund other than the default fund then an administrative ramification may be actually identifying which fund the employee means. Super fund members can sometimes get confused over the name of their super fund and the name of its investment options.

In order to avoid this, employers may need to stipulate that employees provide enough information to make finding and identifying the fund easy, such as supplying its official name and superannuation identification number.

Additionally, employers should remember that most of the new super choice rules concern default funds rather than other funds employees may settle on. This suggests that employers have more scope to drive the administrative processes.

In turn, this leads to the question as to whether or not a fund nominated by an employee will accept a super contribution on their behalf. This is a very important issue which is not properly understood even by some in the superannuation industry. This is because while super choice is about letting employees choose super funds other than the ones nominated by their employer, it isn’t about forcing all funds to accept contributions from all people.

For example, while we would all love to join the ludicrously generous Commonwealth Parliamentary Super Scheme, it only accepts parliamentarians. So just because an employee nominates a fund, it doesn’t mean you have to contribute to that fund on the employee’s behalf.

A related hassle is that some funds, while welcoming new members from any employer, require employers to register with them. Even in a spirit of goodwill, this may not be practical for some employers, especially with large or multinational workforces. In recognition of this, the government recently announced that employers won’t be required to register with funds they don’t want to register with. So the onus will be on employees to nominate funds that will accept them as individuals, so they may be restricted to either their own SMSF or ‘public offer’ funds.

The most practical and probably important consideration for an employer is whether their payroll system will cope with sending superannuation payments to lots of different super funds. For large employers this could be a potential nightmare, as even a mid-size operation with 200 employees will find that if even just 10 per cent of their workforce chooses a fund other than the company’s default then they will be sending superannuation payments to 21 different super funds. For very large companies the numbers multiply so rapidly that they may send payroll teams into catatonic shock.

One easy way to handle this is through a clearing house service, which is an administration service that lets employers make a single superannuation payment on behalf of all their employees and the clearing house service handles the rest by distributing the payments to the different super funds on behalf of each individual employee.

But not all clearing houses are the same, as some force the employer to use a particular fund as its default. For some employers this can defeat the purpose of joining a clearing house in the first place.

Choosing, information and education

Regardless of how an employer actually administers super choice, they will still need to plan for when employees start asking about what super fund they should choose. Whether employers like it or not, employees are likely to think their employer knows something about super.

There are provisions in the choice legislation that act to limit the employer’s responsibilities and liabilities for employees who choose a bad super fund. However, the real question is whether this absolves the employer from all responsibility no matter what they do, or only if they acted constructively, reasonably, and in good faith.

The problem with this is that these boundaries are yet to be defined. This means employers may be wise to act defensively by not favouring particular super funds and not pushing particular lines. For example, employers who invite a particular super fund onto their premises to conduct seminars about super choice may inadvertently be seen to be indirectly promoting that particular super fund.

A way around this is for employers to allow only non-aligned groups on to their premises or to ensure many different super funds get equal time. However, the practicality of this is another question.

Alex Dunnin is director of Research, SelectingSuper (part of the Rainmaker group). Email: [email protected]