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Default Fund-Superannuation Choice

The following post was issued to employer clients of Continuum Financial Planners Pty Ltd at the time of the introduction of some time-critical amendments to superannuation guarantee obligations under the Modern Awards legislation to help employer clients understand their obligations under default fund-superannuation choice provisions of the legislation.

How Modern Awards impact the way default funds or super choice obligations are met

Super-GuaranteeThe default fund for your employees is an important classification – and in the context of the Modern Awards regulatory process plays a significant role in determining the amount of administrative procedure you have to concern yourself with as from 1 January 2010. It is also worth noting that your employees are at an advantage in the present circumstances – and can benefit further if additional members are added to the existing group.

A default fund is the ‘employer choice’ fund that is used to satisfy the employer’s obligations under the Choice of Super rules: if a new employee fails to advise any alternative account, this is the fund into which you will automatically pay their contributions. The default fund – or the superannuation choice fund (’employee choice’ fund) – facilitates compliance with the superannuation guarantee obligations as an employer.

In your case, the fund is an Asgard Employee Superannuation Account group. Under this particular structure, employees are entitled to reduced fees within their accounts subject to their individual account balance – as well as a further discount based on: a) the number of members in the default fund; and b) the total value of the member account balances. The downside of this is that as members exercise their ‘choice’ to move to a different provider, not only do they remove themselves from the discount mechanism – but they also expose their fellow members to a reduced discount eligibility.

Because your default fund was established prior to 12 September 2008 (refer our article ‘Critical Superannuation Guarantee Obligations Dates‘), your new employees can also be accommodated within the Asgard fund in spite of any Modern Awards specification – unless they elect under their Choice of Super right to make a different selection.

A further consideration when looking at the default fund process is the insurance protection offered to employees: the higher the number of members, the more generous the ‘Automatic Acceptance Limits’ applicable. The AALs are important – and can be quite helpful to members who have had difficulty obtaining adequate cover outside of their superannuation account, as they are able to take up cover to the AAL without having to undergo medical reporting or underwriting generally.

If you would like a further review of the insurance benefit offered within your default fund, please contact us to arrange a discussion with one of our experienced advisers.

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