Since 1 July 2005, employees have been able to choose a super fund for the first time, under the Choice of Funds legislation. 

All new eligible employees must be offered a choice for where they want their employer super guarantee contributions to go within 28 days of joining your business.

Following this, an employee can choose a fund once each year.

Not all employees must be given a choice.

The new legislation specifically excludes:

• Employees covered by a Certified Agreement that specifies a particular super fund.
• Employees covered by an Australian Workplace Agreement that specifies a particular super fund.
• Government employees in unfunded public sector super schemes.
• Government employees who are members of the Commonwealth Superannuation Scheme or the Public Sector Superannuation Scheme.
• 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 in surplus, or who have accrued their maximum benefit.

The employers of individuals covered by these exclusions will be able to make contributions according to the relevant award or agreement and still be compliant with the Choice of Fund rules.

They can choose a fund in two ways:

• By completing a ‘Standard Choice Form’, which you need to give them, or
  
  
• By providing a written notice to you requesting that contributions be made to their chosen fund.

You will receive the template for the Standard Choice Form early in 2005. This form must be provided to all employees by 29 July 2005 or within 28 days for new employees joining your business after 1 July 2005.

If an employee doesn’t make a choice or chooses a fund that your business cannot contribute to, then you can make contributions to a default fund. The default fund is generally one selected by you, although it may also be specified in some Federal Awards.

Yes. The compulsory employer superannuation contribution rules have not changed as a result of Choice.

No. Choice of Fund applies only to Superannuation Guarantee contributions, the 9% compulsory superannuation you're paying at the moment. The legislation does not cover voluntary employer contributions, salary sacrifice super or member voluntary contributions. However, for ease of your administration, it may be worth considering extending choice to all contribution types for your employees.

Choice covers only compulsory superannuation guarantee contributions, and not existing superannuation balances. However, to avoid complexity and give employees flexibility, the Government has also passed legislation that makes it compulsory for all funds to allow transfers of inactive accounts (that is accounts that have not received any employer contributions within the last six months).

Your business will face a penalty of 25% of any contributions made to a fund other than one chosen by the employee, up to a maximum of $500 per employee per quarter. Furthermore, the contributions you make and the penalties are not tax deductible.

Chant West is an independent research and consultancy firm that helps organisations and individuals make well-informed decisions about their super funds. Their new reporting tool called Chant West AppleCheck is a user-friendly online tool that allows you to compare up to 3 funds at a time. You select the funds and AppleCheck rates them side by side, looking at their investments, fees, insurance, member services and total costs.

Can an employer charge me for Choice?

No, your employer cannot charge you for allowing you to choose a fund if you're legally allowed to do so.

Will Choice mean that I pay higher fees in my super fund?

Not necessarily - it is anticipated that, overall, Choice will make the super industry more competitive and that this may drive down fees.

Some funds already have very low fees due to the way they are structured and the economies of scale that come with having a large number of members – such as Colonial First State FirstChoice Personal Super.

When selecting your super fund, consider the financial strength of the provider. Have they the financial power and economies of scale to improve services and product features without increasing fees?

You will need to carefully compare the fees you're paying in your current fund with the fees you'd be charged in another fund, to work out which represents the best value for you. Your financial adviser may also be able to help.

What kind of insurance is included with superannuation?

You usually have access to three types of insurance through superannuation-

• Death only
• Death and Total and Permanent Disability
• Salary Continuance (ie. Where you are temporarily ill or injured, you receive a percentage of your income)

Each fund may offer some or all of the different insurance options, or none at all. Details of the types of cover available should be included in the fund’s Product Disclosure Statement.

Should I look for a fund that includes life insurance?

Whether you need life insurance or not is a question you should discuss with your adviser. However, if you do need life insurance, accessing it through your superannuation fund should definitely be considered as it may quite often be cheaper and tax-effective.
 
Will Choice mean that insurance premiums are higher?

Not necessarily, you may find that by joining a larger superannuation fund, you can get more cover or lower insurance premiums than you currently get. Regarding fees, you need to compare the situation in your current fund with that in another fund.

Does the default superannuation fund that my employer offers need to provide a minimum level of death only insurance?

Yes, under choice legislation all employer sponsored default funds must provide a minimum level of death only insurance.

If I choose a new fund, can I transfer my insurance over?

Generally no, most insurers don’t allow you to transfer insurance between different super funds, however you should check with your fund.

Some funds offer a ‘pre-assessment’ service that allows you to determine if you will get cover and any conditions that may apply, before you commence insurance cover.