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News & Knowledge

Australia: No more choice for employers when it comes to Super Choice

10th November 2021

Changes have been made to the Super Choice rules with the view to simplify employee superannuation by preventing the opening of multiple funds for one person. In essence; 1 superfund from 1/11 – clever! MSI's Melbourne accounting member Morrows Pty Ltd explains more in this blog post.

Not having received much press, this announcement is equally relevant but perhaps somewhat overshadowed by the super’s one-hit-wonder announcement, ladies and gentlemen, the increase of the superannuation guarantee charge from 9.5% to 10% following the changes released in the budget and recent legistation.

As it currently stands, if an employee does not nominate a superfund at the inception of their employment, the employer may open a new default super fund for them in order to meet superannuation guarantee charge obligations. Offering an easy but band-aid solution this practice has manifested into the unnecessary creation of multiple unintended superfund accounts and has subsequently reduced retirement savings (by way of duplicate fees and insurance premiums) for affected members.

In light of the new rules, an employee will ideally have a single superfund that carries over from one employer to the next, known as a ‘stapled’ fund. Think of the fund ‘stapled’ to the employee leapfrogging from employer to employer.

If an employee does not nominate a superfund at the commencement of employment, employers will be required to make super payments into the designated stapled fund (if one exists) rather than their own chosen default fund.

While the lack of nomination can often be a result of laziness, ignorance, or incomplete understanding on the employee’s part, employers should note with a grain of salt that the onus lies with them to make the relevant inquiries with regard to any existing stapled fund not only with the employee but with the ATO. Time to start putting some extra emphasis on Super Choice in the employee onboarding process.

As employees don’t always know what’s what when it comes to their super, the process of checking with the ATO will no doubt become routine. The ATO is setting up its own digital service for the occasion.

If no stapled fund exists, then employers can look into opening one under their default choice.

Overall, while the change will no doubt do some good in the grander scheme of things, it is employers that will be doing the legwork on this one.

With any new announcements come new questions, particularly around the practical considerations for what the bill is proposing. How is the ATO going to go about selecting the stapled fund behind the scenes? What does this ‘digital service’ entail and what are the expected request processing times? What of the penalties for employers who are not aware of the new requirements, or where the contributions to the stapled fund were not accepted? What to do about employees who spin elaborate promises to produce a super nomination form next month, or the month after?

Word on the street is that the ATO is fostering leniency for at least a year from 1 November, no doubt to observe and quietly contemplate how to deal with the practical consequences arising from the new concept.

About Morrows Pty Ltd - Melbourne

A One Team Advice House across a wide range of finance areas. Our experienced team works collaboratively ensuring clients receive advice to meet their needs. ‘Your financial future, tailored your way’ is our philosophy - everything we do, from initial communications through needs analysis to delivering results underpins this goal.

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