Choice of fund
Provide all employees with the ability to choose the fund into which their Superannuation Guarantee contributions are paid.
Government should remove provisions in the Superannuation Guarantee (Administration) Act 1992 that deny some employees the ability to choose the fund that receives their SG contributions due to the exclusions given to enterprise agreements, workplace determinations and some awards.88,89
- Remove barriers to members engaging with their superannuation by ensuring all employees, to the extent possible, have the right to choose their superannuation fund.
Problem the recommendation seeks to address
A significant minority of employees cannot choose the superannuation fund that receives their SG contributions. In particular, this affects employees with a superannuation fund nominated in an enterprise agreement, a workplace determination or a state-based award. A 2010 ASFA paper found that around 20 per cent of employees cannot choose their fund.90 These exemptions contribute to employees having multiple superannuation accounts and paying multiple sets of fees and insurance premiums, which reduces retirement income. (See the Recommendation 10: Improving efficiency during accumulation for further discussion on the cost of multiple accounts.) For some individuals, lack of choice contributes to disengagement with superannuation.
When legislation was introduced to allow employees to choose their superannuation fund, concerns were raised about the compliance costs to employers from having to make contributions to multiple funds. However, changes in technology and the introduction of SuperStream are reducing these costs. Many employers use clearing houses to make payments to multiple superannuation funds, and Government already provides a free clearing house service for small businesses.
Submissions note that choice contributes to higher superannuation fees in Australia relative to some other countries. However, extending choice to the remaining 20 per cent of employees is not expected to increase costs significantly for industry.
As a general principle, the Inquiry believes everyone should be able choose the fund that receives their SG contributions. The superannuation system should assist members to achieve their individual goals and make savings decisions that suit their personal circumstances. Several submissions highlight the benefits of choice in providing flexibility for members and lowering fees through greater competition.
Accordingly, regulatory impediments to individuals exercising choice should be removed. State governments should be encouraged to allow all employees choice.
88 Superannuation Guarantee (Administration) Act 1992, Part 3A, s32C.
89 In principle, this recommendation should apply to all employees but, for Constitutional reasons, the Commonwealth cannot instruct changes to state agreements and awards.
90 Clare, R 2010, ‘Choosing to choose’, Association of Superannuation Funds of Australia, paper presented at the 18th Annual Colloquium of Superannuation Researchers, Sydney, 12-13 July, page 9.