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Your Future, Your Super, Your New Obligations: Choice of fund requirements for new employees – Are you ready?

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Written by Greg Protektor, Ruth Rosedale, Tim Wells and Darcy Harwood.

What you need to know

  • The rules regarding an employer's use of "default" superannuation funds are about to change.
  • The Your Future, Your Super amendments to the "choice of fund" superannuation rules will come into effect for most new employees who commence employment with an employer on or after 1 November 2021.  This means that, from 1 November 2021, employers can only make superannuation contributions to the employer's default superannuation fund on behalf of eligible new employees if:
    • the employee does not nominate an eligible superannuation fund for receipt of superannuation contributions (this is consistent with the current position); and
    • the employer has received confirmation from the Commissioner of Taxation (Commissioner) that the employee does not have a "stapled fund".
  • A stapled fund is an existing eligible superannuation account that is linked (i.e. "stapled") to an employee so that it follows them as they change jobs.    
  • Employers should consider as a matter of priority whether the drafting in their template employment agreements need to be updated to give effect to the changes introduced by the Your Future, Your Super amendments.  Employers should also take this opportunity to review and update their internal procedures and onboarding processes around superannuation and check (and update where necessary) the access levels of relevant representatives to the online portal of the Australian Taxation Office (ATO) to determine whether an employee has a "stapled fund".

Background

The amendments to the use of "default" superannuation funds were first announced by the Federal Government in the 2020-21 Budget and were introduced by the Treasury Laws Amendment (Your Future, Your Super) Act 2021 (Cth). 

The amendments are intended to prevent eligible employees from being burdened with unnecessary superannuation accounts which are created for them – and corresponding account fees and insurance costs – each time they change jobs.  The changes have been introduced in response to findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, as well as to findings of the Productivity Commission.

Choice of fund requirements

Existing law

The Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA) requires employers to pay minimum superannuation guarantee contributions in respect of their employees.  The contributions are required to be paid into an eligible superannuation account held on behalf of each eligible employee.

Under the existing choice of fund requirements in the SGAA, an eligible complying superannuation fund is, broadly:

  • any eligible complying fund that is nominated by an eligible employee to the employer; or
  • if an employee has not nominated an eligible complying fund, then either the employer's default fund or, where relevant, a fund specified in a workplace determination or an enterprise agreement.

Changes from 1 November 2021

The Your Future, Your Super amendments to the "choice of fund" rules do not affect the payment of superannuation amounts into a fund which is specifically chosen by an eligible employee.  That is, employers will still be required to make compulsory superannuation contributions into an eligible complying superannuation fund that is chosen by an employee who is eligible to choose a superannuation fund.

However, with effect from 1 November 2021, if a new eligible employee has not nominated to their employer a complying superannuation fund for the payment of minimum superannuation guarantee contributions on their behalf, the employer is under a positive obligation to ask the Commissioner to identify whether the employee has a stapled fund.  This can be done through the ATO's online services. 

If the Commissioner identifies that an employee:

  1. has a stapled fund, the employer must make compulsory superannuation guarantee contributions to that stapled fund; or
  2. does not have a stapled fund, the employer can satisfy the choice fund requirements under the SGAA by making contributions to the employer's default fund (or in some circumstances to a fund specified in a workplace determination or an enterprise agreement).

Under the amendments, if an employer has been making contributions to an employee's stapled fund and the employee's interest in that stapled fund is transferred to a successor fund without the employee's consent, the employer will continue to satisfy the choice of fund requirements by making contributions to the successor fund (provided the employee does not notify the employer that they wish to change funds).

Transitional support

The ATO will provide employers with transitional support regarding the new choice of fund requirements from 1 November 2021 until 31 October 2022.  This will involve reducing any superannuation guarantee shortfalls that are created due to a failure to comply with the choice of fund rules if the shortfall arose as a result of the employer's lack of knowledge of the new choice of fund requirements.  However, no such leniency will be afforded to employers who show an intentional disregard of the new choice of fund requirements.  This transitional approach will only apply to a failure to comply with the new stapled fund requirements and does not extend to a failure to comply with the existing choice of funds regime.

What should employers do now?

Update template employment agreements

As a matter of priority, we suggest employers consider whether the drafting in the template employment agreements provided to employees commencing after 1 November 2021 gives effect to, and is compliant with, the changes brought about by the Your Future, Your Super amendments. 

Review internal procedures

The amendments provide a timely opportunity for employers to review and update their internal procedures and onboarding processes to ensure they comply with the legislative requirements in respect of superannuation.  For example, considering if such procedures should include a 'step' for the employer to run a search of the ATO electronic database on stapled funds or otherwise check with the ATO for an employee's stapled fund when onboarding an employee in circumstances where they have not completed a "Choice of Superannuation Fund" form.

It would also be prudent to check (and update where necessary) the access levels of relevant representatives to the online portal of the Australian Taxation Office so that the right people within the business can check whether an employee has a "stapled fund".

Maintaining open lines of communication

Finally, employers should continue to communicate with the different functions of their business (i.e., HR and finance) in respect of the superannuation requirements as well as incoming employees to ensure the impact of the Your Super, Your Future amendments are clearly understood.

Helpfully, ASIC has recently updated their guidance for employers in light of the amendments.  In particular, Information Sheet 89: Communicating with employees about superannuation fund choice: What you can and cannot do provides guidance to employers around communicating with employees about their superannuation choices.  The ATO have also released some information around requesting stapled super fund details for employees here.