Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 1 - Choice of superannuation funds
Outline of chapter
1.1 This chapter outlines the amendments to the SGAA 1992 to:
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- require employers to make compulsory superannuation contributions to a complying superannuation fund, superannuation scheme or RSA in compliance with the choice of fund requirements; and
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- impose penalties on employers who fail to satisfy their choice of fund obligations.
Context of amendments
1.2 On 5 November 2001 the Government reaffirmed, as part of the policy document A Better Superannuation System , its commitment to providing workers the freedom to decide who manages their superannuation.
1.3 The choice of fund amendments will increase competition and efficiency in the superannuation industry, leading to improved returns on superannuation savings and placing downward pressure on fund administration charges.
Summary of new law
1.4 Item 22 inserts Part 3A into the SGAA 1992 which sets out the choice of fund requirements. Essentially, an employer will meet these requirements where they provide superannuation support or make contributions to a fund chosen by the employee in accordance with the provisions. Where there is no employee chosen fund at the time of the contribution, the employer may make a contribution to a default fund in order to satisfy the choice of fund requirements.
1.5 Part 3A provides the process to be followed where an employer is required to formally offer a choice of fund to employees. Specifically, Division 6 provides for when and how this is done.
1.6 This bill also sets out the other circumstances where superannuation contributions are made in compliance with the choice of fund requirements, for example, contributions made in accordance with a workplace agreement [Schedule 1, item 22, subsection 32C(6)] , and makes a number of other changes related to the introduction of choice.
1.7 Where an employer fails to satisfy their choice of fund obligations they may be guilty of an offence.
1.8 Part 3A makes frequent reference to a fund. A fund is defined for these purposes to mean a superannuation fund, a superannuation scheme and an RSA [Schedule 1, item 22, section 32E] . The term contribution to a fund used in section 32C also includes notional contributions to a defined benefit scheme (see paragraph 32U(1)(b) and the note at the end of section 32C). A holder of an RSA is taken to be a member [Schedule 1, item 22, subsection 32E(2)] since the Retirement Savings Accounts Act 1997 refers to the term RSA holders , not members of an RSA. References to the regulations is a reference to the Superannuation Guarantee (Administration) Regulations 1993.
Comparison of key features of new law and current law
| New law | Current law |
|---|---|
| Employers must provide their employees with a choice of superannuation fund to which the employer will make the employees superannuation contributions. | There are no equivalent provisions in the SGAA 1992. Currently, employers may choose the fund to which they pay their employees superannuation contributions unless determined by an award. |
Detailed explanation of new law
1.9 The detailed explanation of the new law is divided into 6 parts:
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- part 1 outlines which contributions will satisfy the choice of fund requirements;
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- part 2 outlines how an employee can choose a superannuation fund and the type of funds that can be chosen;
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- part 3 outlines the obligations on employers when offering choice especially the role of the standard choice form;
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- part 4 explains the default fund rules;
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- part 5 deals with other matters resulting from the choice of fund requirements; and
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- part 6 deals with penalties for a contravention of the choice of fund requirements.
Part 1: Contributions that satisfy choice
1.10 Contributions made by employers for the benefit of employees must be in accordance with the choice of fund requirements. [Schedule 1, item 22, section 32C]
1.11 It should be noted that while section 32C refers to contributions made, it also covers support provided through defined benefit schemes, including unfunded ones. This is because paragraph 32U(1)(b), which deals with defined benefit schemes, refers to notional contributions to the scheme (see paragraph 1.8). It is these notional contributions, as well as actual contributions to superannuation funds, that are referred to in section 32C (see note at end of section 32C).
1.12 The following contributions are made in compliance with the choice of fund requirements:
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- contributions to a chosen fund [Schedule 1, item 22, paragraph 32C(1)(a)]
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- a default fund, where there is no chosen fund for the employee [Schedule 1, item 22, subsection 32C(2)]
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- contributions to unfunded public sector arrangements other than contributions in respect of Commonwealth employees that are members of the CSS or the PSS [Schedule 1, item 6, definition of Commonwealth employee in subsection 6(1), item 8, definition of CSS in subsection 6(1), item 12, definition of PSS in subsection 6(1) and item 22, paragraph 32C(1)(b)] ;
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- contributions made to the CSS, PSS and contributions made under the Superannuation (Productivity Benefit) Act 1988 until such time as regulations are made such that these subsections do not apply [Schedule 1, item 22, subsections 32C(3) to (5)] ;
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- contributions made under, or in accordance with, an AWA or a certified agreement under the Workplace Relations Act 1996 , or a certified agreement under the Industrial Relations Act 1988 or made under certain Victorian agreements [Schedule 1, item 22, subsections 32C(6) and (7)] ;
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- contributions made in respect of an employee where the contribution is made under, or in accordance with, a State industrial award [Schedule 1, item 13, definition of State industrial award in subsection 6(1) and item 22, subsection 32C(8)] ; or
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- contributions made under prescribed laws [Schedule 1, item 22, subsection 32C(9)] .
1.13 Part 5 of this document elaborates on some of these arrangements.
1.14 This bill sets out what the chosen fund of an employee will be and when a fund ceases to be a chosen fund. Employees will have the option of choosing a fund through a formal choice process, whereby their employer will have to satisfy the choice process set out in Division 6, or a less formalised individual written agreement approach. [Schedule 1, item 22, sections 32F to 32H]
1.15 The key rules of the formal choice process are:
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- only eligible choice funds may become chosen funds of an employee (see paragraphs 1.20 to 1.25) [Schedule 1, item 22, subsection 32R(1)] ;
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- the employer must be able to contribute to the fund on behalf of the employee [Schedule 1, item 22, subsection 32H(3)] ;
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- a fund is a chosen fund if the employee has selected the fund in accordance with the choice process set out in Division 6 (see paragraphs 1.26 to 1.35) [Schedule 1, item 22, subsection 32F(1)] ; and
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- a fund becomes a chosen fund 2 months after the employee provides the employer with written notice in accordance with section 32Q [Schedule 1, item 22, subsection 32F(2)] . However, an employer may agree for a chosen fund to start earlier than this time.
1.16 An employee may also choose a fund using a less formalised individual written agreement approach. To satisfy section 32G an employee must give a written notice to their employer proposing a fund to be a chosen fund. The employer must then give the employee a written notice accepting that fund as a chosen fund [Schedule 1, item 22, subsection 32G(1)] . The employer is not required to accept an employees choice under this option, however if they do not then the employee can request the same fund using the formal choice process. The employer cannot refuse this choice if the chosen fund is an eligible fund and is willing to accept their contributions.
1.17 A fund that has been nominated using an individual written agreement becomes a chosen fund 2 months after the employer has given the written notice agreeing to the employees chosen fund [Schedule 1, item 22, subsection 32G(2)] . An employer may agree, however, the benefits can start being paid into the chosen fund before this time.
1.18 An employee cannot take advantage of the individual written agreement option if the employee is a defined benefit member of a defined benefit superannuation scheme of a chosen fund, or default fund. This ensures that these employees will be given the information specific to the effects a choice may have on their superannuation benefits (e.g. death benefits). [Schedule 1, item 22, subsection 32G(3)]
When a fund ceases to be a chosen fund
1.19 Section 32H outlines the circumstances in which a fund will cease to be a chosen fund. These are:
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- the employee chooses another fund as a chosen fund and the employee has not given the employer written notice stating that the old fund continues to be a chosen fund;
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- if the employee requests the employer to give them a standard choice form, and the employer does not do so by the specified time;
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- the employer can no longer contribute to a chosen fund; or
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- a fund ceases to be a chosen fund if the fund ceases to be an eligible choice fund for the employer (see paragraph 1.20).
[Schedule 1, item 22, subsections 32H(1) to (4)]
1.20 A fund is an eligible choice fund at a particular time if:
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- it is a complying superannuation fund at that time;
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- it is a complying superannuation scheme at that time;
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- it is an RSA;
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- at that time a benefit certificate is conclusively presumed under section 24 of the SGAA 1992 to be a certificate in relation to a complying superannuation scheme; or
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- contributions made by the employer to the fund at that time are conclusively presumed under section 25 of the SGAA 1992 to be contributions to a complying superannuation scheme.
[Schedule 1, item 22, section 32D]
1.21 Only eligible choice funds may become chosen funds of an employee [Schedule 1, item 22, subsection 32R(1)] . Similarly, only eligible choice funds may be default funds [Schedule 1, item 22, paragraph 32K(4)(a)] . The fund chosen by the employee must also be a fund to which the employer can contribute on behalf of the employee at the time the choice was made [Schedule 1, item 22, subsection 32R(2)] .
1.22 If an employer is unsure about the status of a fund selected by an employee, the employer may seek from the employee a statement provided by the trustee of the kind specified in section 32S. This notice requires a written statement similar to those referred to in subsections 24(1) and 25(1) of the SGAA 1992 [Schedule 1, item 22, paragraph 32S(1)(a)] . These statements broadly attest that the scheme:
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- is a resident, regulated superannuation fund; and
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- is not subject to a direction by the regulator not to accept contributions by an employer-sponsor (see section 63 of the SIS Act).
1.23 The employer can also request a written statement from the employee setting out the contact details of the fund including the employees account, membership or similar number and any other prescribed information. [Schedule 1, item 22, paragraph 32S(1)(b)]
1.24 If the employee does not provide the statement within 28 days then the fund selected by the employee ceases to be an eligible choice fund [Schedule 1, item 22, subsection 32D(2)] . The employer is then able to contribute to a default fund for the employee to satisfy the choice of fund requirements [Schedule 1, item 22, subsection 32C(2)] .
1.25 More broadly, a fund ceases to be a chosen fund or a default fund if the fund ceases to be an eligible choice fund [Schedule 1, item 22, subsections 32H(4) and 32L(2)] . An employer must offer a choice of funds to an employee within 28 days of becoming aware that a fund has ceased to be an eligible choice fund [Schedule 1, item 22, paragraph 32N(4)(b)] , except where the fund ceases to be a chosen fund because of subsection 32D(2) (see paragraph 1.24).
1.26 From 1 July 2004, unless a contribution satisfies the choice of fund requirements in Division 2 or there is an individual written agreement as per section 32G, employers will be required to provide employees with unlimited choice in accordance with Division 6. Where an employer fails to comply with this Division, there will be no default fund for the employee [Schedule 1, item 22, subsection 32J(2)] . This will mean that the employer may face a penalty for not meeting their choice obligations.
When does an employer have to provide a standard choice form?
1.27 Employers must give an employee a standard choice form:
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- before 29 July 2004 to each employee employed by the employer on 1 July 2004 [Schedule 1, item 22, subsection 32N(1)] ;
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- within 28 days of an employee first commencing employment after 1 July 2004 [Schedule 1, item 22, subsection 32N(2) xe "[Schedule 1, item 22, subsection 32N(2" \t "1.27"] . During this 28 day period, if the employee does not choose a fund the employer will be able to satisfy their choice obligations by paying to the default fund [Schedule 1, item 22, subsection 32C(2)] ;
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- within 28 days of an employee request for a standard choice form. Note that an employer is not required to provide a standard choice form where an employees request is made within 12 months from the time of the last standard choice form being given to the employee [Schedule 1, item 22, subsection 32N(3)] ;
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- within 28 days of an employer becoming aware that they can no longer contribute to a chosen fund or the chosen fund ceases to be an eligible choice fund [Schedule 1, item 22, paragraphs 32N(4)(a) and (b)] ; or
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- within 28 days of an employer becoming aware that an employees default fund ceases to be the default fund because the employer can no longer contribute to that fund on behalf of the employee, the default fund ceases to be an eligible default fund or the default fund fails to provide the information referred to in paragraphs 32P(1)(d) to (f) [Schedule 1, item 22, subsection 32N(5)] . This only applies where the employee does not have a chosen fund.
1.28 In addition to these requirements, an employer may also offer a choice of funds at any time. [Schedule 1, item 22, subsection 32N(6)]
1.29 It may be noted that at any time an employee may propose a fund as a chosen fund and the employer may accept that fund as a chosen fund for the employee [Schedule 1, item 22, section 32G] . Where this occurs, there will be no need for the employer to provide a standard choice form. This option is not available if the employee is currently a member of a defined benefits fund (see paragraph 1.32).
1.30 Further, the choice of fund requirements must be met separately by each employer of an employee. Therefore, a choice made by an employee under an offer made by one employer will not result in that fund being the chosen fund for that employee in respect of another employer. [Schedule 1, item 22, section 32X]
1.31 A standard choice form must be provided to an employee in writing and contain:
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- a statement that the employee may choose any eligible choice fund for the employer as a chosen fund for the employee;
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- the day on which the standard choice form is provided and the day by which the employee must make a choice;
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- the default fund to which the employer will contribute if the employee does not make a choice;
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- disclosure information in relation to the default fund that is required under the regulations to be included including where and how that information can be accessed;
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- other information required by the regulations; and
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- where the employee is a member of a defined benefits scheme and the employer is contributing to that scheme on behalf of the employee, information that is required under the regulations is to be included.
[Schedule 1, item 22, paragraphs 32P(1)(a) to (g)]
1.32 If an employer is contributing to a defined benefit scheme on behalf of a defined benefit member, the employer will need to provide the information required by the regulations to an employee about the defined benefit fund (e.g. death benefits). To achieve this, employers will be required to provide defined benefit members of defined benefit superannuation schemes with a standard choice form before they exercise choice. [Schedule 1, item 22, subsection 32G(3)]
When and how must an employee respond to an offer?
1.33 Employees are provided with 28 days after receiving a standard choice form to make a choice. The choice must be in writing. A choice made after 28 days is not effective unless the employer agrees to accept it. [Schedule 1, item 22, section 32Q]
1.34 The fund chosen must be an eligible choice fund for the employer at the time the choice is made and the employer must be able to contribute on behalf of the employee at the time the choice is made. [Schedule 1, item 22, section 32R]
1.35 If the employer requests from an employee a statement of the kind referred to in sections 24 and 25 of the SGAA 1992 (see paragraph 1.22), the employee will need to approach the trustee of the fund to obtain the statement. If the employee does not provide the employer with the statement within 28 days, the fund selected by the employee ceases to be an eligible choice fund [Schedule 1, item 22, subsection 32D(2) and section 32S] . The employer is then able to contribute to a default fund for the employee to satisfy the choice of fund requirements [Schedule 1, item 22, subsection 32C(2)] .
1.36 An employer has a default fund to contribute to at all times where they have met an obligation to provide a standard choice form to an employee in accordance with Division 6 [Schedule 1, item 22, section 32J] . Failure to comply with a requirement to provide an employee with a standard choice form will cause the default fund to cease temporarily (the employer will not have a default fund available to contribute to) until that outstanding obligation is satisfied. Where there is a chosen fund, an employer cannot satisfy their choice requirements by contributing to the employees default fund [Schedule 1, item 22, subsection 32C(2)] .
What fund is the default fund?
1.37 Section 32K establishes the default fund that will qualify in relation to an employee [Schedule 1, item 22, section 32K] . Default funds will also be required to provide minimum levels of insurance in respect of death in order to qualify.
1.38 The default fund determined in accordance with section 32K remains the default fund in relation to that employee until one of the situations in section 32L occurs. Where a default fund ceases to qualify as a default fund under section 32L, the new default fund for the employee is to be determined in accordance with section 32K. [Schedule 1, item 22, subsection 32K(1)]
1.39 For new employees or ongoing employees whose default fund has ceased by virtue of section 32L (see paragraphs 1.50 and 1.51), the default fund will be:
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- the Commonwealth or Territory industrial award fund for the employee;
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- if there is no Commonwealth or Territory industrial award fund for the employee - the majority fund; or
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- if there is no Commonwealth or Territory industrial award fund for the employee and no majority fund - any eligible default fund selected by the employer.
[Schedule 1, item 22, subsection 32K(2)]
Commonwealth or Territory industrial award fund
1.40 If an employee is covered by a Commonwealth or Territory award the default fund will be the fund provided for in the relevant award. If there is more than one fund provided for in the award for employees, the employer must choose one of those funds as the default fund for the employee. For example, the relevant award may specify a particular fund or any other complying fund for employees, or specify a particular fund or any complying in-house fund for employees. Where this is the case the employer may choose any of the funds provided for in the award as the employees default fund. [Schedule 1, item 22, subsections 32K(5) and (6)]
1.41 If the:
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- award does not identify any fund for employees;
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- funds provided for in the award do not meet the definition of an eligible default fund;
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- employer is unable to contribute to any of the funds provided for in the award; or
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- award specifies that employees should have a choice as to where employer contributions are paid,
the default fund is to be determined in accordance with new subsection 32K(2).
1.42 If there is no Commonwealth or Territory industrial award fund for employees, the default fund will be the majority fund. [Schedule 1, item 22, paragraph 32K(2)(b)]
1.43 The majority fund is the eligible choice fund to which the employer contributes on behalf of more employees than any other fund. Employers will not be required to assess the majority fund each time a new employee commences employment. Rather, employers will be required to determine the majority fund at a minimum of once every 12 months. [Schedule 1, item 22, subsections 32K(7), (8) and (10)]
1.44 If an employer is unable to contribute to the majority fund on behalf of the employee or the majority fund does not meet the definition of an eligible default fund, the employer may select any eligible default fund in accordance with paragraph 32K(2)(c) as the default fund for the employee.
1.45 If an employer contributes on behalf of the same number of employees to 2 or more funds, the employer must choose one of those funds as the default fund for the employee. [Schedule 1, item 22, subsection 32K(9)]
1.46 If the funds do not meet the definition of an eligible default fund or the employer is unable to contribute to any of these funds on behalf of the employee, the employer may select any eligible default fund in accordance with paragraph 32K(2)(c) as the default fund for the employee.
1.47 New employers will be able to select an employees default fund for the first 12 months where there is no Commonwealth or Territory industrial award fund for the employee. This must be an eligible default fund. After 12 months of being an employer, the default fund for employees is the employers selected majority fund where there is no Commonwealth or Territory industrial award fund for the employee. [Schedule 1, item 22, subsection 32K(11)]
Special rules for employees on 1 July 2004
1.48 The default fund for existing employees on the commencement of choice will be the last eligible choice fund to which the employer contributes on behalf of the employee before 1 July 2004 [Schedule 1, item 22, subsection 32K(3)] . If this fund does not meet the definition of an eligible default fund the employer must determine the default fund in accordance with subsection 32K(2).
1.49 Funds must meet the definition of an eligible default fund in order to qualify as a default fund in relation to an employee. An eligible default fund is an eligible choice fund that meets the prescribed requirements in relation to offering insurance in respect of death. [Schedule 1, item 22, subsection 32K(4)]
When does a fund cease to qualify as a default fund?
1.50 A fund that is the default fund for an employee will cease to qualify as a default fund if:
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- the employer is unable to contribute to the fund on behalf of the employee;
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- the fund ceases to be an eligible choice fund or ceases to meet the prescribed requirements in relation to offering insurance in respect of death;
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- the employer, after making reasonable efforts to obtain information prescribed under paragraphs 32P(1)(d) to (f), is unable to obtain that information; or
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- the employee ceases employment with that employer.
[Schedule 1, item 22, subsections 32L(1) to (4)]
1.51 In order to protect employers, subsection 32L(3) has been inserted. Under the new arrangements a particular fund qualifies as the default fund in relation to an employee. Situations may arise where employers will be unable to satisfy their choice of fund requirements if the selected default fund is unable to provide certain information in a timely manner. If, after making reasonable efforts to obtain the prescribed information the employer is unable to do so, they will be able to determine a new default fund for the employee in accordance with subsection 32K(2).
Example 1.1
Matthew has been in continuous employment with Super Chicken since February 1998. Matthew is the sole employee of Helen. Helen has contributed to the Sure Fund on behalf of Matthew since he commenced employment.
At 1 July 2004, Matthews default fund is the Sure Fund (the fund is an eligible default fund). The Sure Fund will be Matthews default fund until it ceases to qualify as a default fund.
On 31 October 2004, Anna commences employment for Helen at Super Chicken. Anna is covered under the Retail Employees Commonwealth award. The award states that the fund into which superannuation contributions are to be made is the Sure Fund.
Helen must select the Sure Fund as the default fund for Anna. The Sure Fund will be Annas default fund until it ceases to qualify as a default fund.
On 23 December 2004, Sure Fund informs Helen that it will no longer accept further contributions. Helen must provide a standard choice form to Matthew and Anna nominating the new default fund within 28 days (assuming the parties do not enter into a suitable agreement).
The new default fund is to be determined on the basis that Sure Fund no longer exists. Therefore, because there is no award fund or majority fund (the award and majority fund no longer exists), Helen can choose any eligible default fund for Matthew and Anna.
Example 1.2
Phil commences employment with a recycling company on 29 January 2005. Phil is not covered by a Commonwealth or Territory award. The default fund in the first instance will be the majority fund.
Khali, Phils employer, contributes to the Hoang Superannuation Fund on behalf of 10 employees and the First Choice Superannuation Fund on behalf of another 4. The Hoang Superannuation Fund, however, is not an eligible default fund (it does not meet the prescribed requirements in relation to offering insurance). Therefore, because there is no award fund (Phil is not covered by an award) or majority fund (the majority fund is not an eligible default fund), Khali can choose any eligible default fund for Phil.
On 5 September 2005, Fran commences employment with the recycling company. Fran is not covered by a Commonwealth or Territory award. The default fund will again be the majority fund in the first instance.
Khali knows the majority fund is the Hoang Superannuation Fund (this was calculated less than 12 months ago when Phil commenced employment). The Hoang Superannuation Fund is now an eligible default fund (changes made by the trustees ensure that it now meets the prescribed requirements in relation to offering insurance). Therefore, Frans default fund is the Hoang Superannuation Fund.
Example 1.3
Victor commences employment with a glassblowing factory on 12 March 2005. Victor is covered by the Glassblowers Commonwealth award. There is a clause in the award that states employees should have a choice as to where compulsory employer contributions are paid. The award further states that in the absence of a choice, superannuation contributions are to be made to the Glass Superannuation Fund.
As the award states employees should have a choice as to where contributions are paid, Victors default fund will be the majority fund in the first instance. If the majority fund (determined at least once in the previous 12 months) is not an eligible default fund, Victors employer may choose any eligible default fund for Victor.
1.52 Where an employer makes contributions under, or in accordance with, an AWA or a certified agreement, those contributions are made in compliance with the choice of fund requirements [Schedule 1, item 22, subsection 32C(2)] . The AWA must be made under the Workplace Relations Act 1996 , and the certified agreement must be made under either the Workplace Relations Act 1996 or the Industrial Relations Act 1988 .
1.53 The only collective agreements that will satisfy the choice of fund requirements are formal collective agreements via certified agreements.
1.54 There are a number of Victorian State individual and workplace agreements that were in force prior to the referral of Victorias industrial relations power to the Commonwealth. These agreements are now preserved under the Commonwealths Workplace Relations Act 1996 , and are in essence no different to other workplace agreements made under that Act.
1.55 Contributions by an employer to a fund will satisfy the choice of fund requirements where that contribution is made under, or in accordance with, an employment agreement that was in force under the Employee Relations Act 1992 (Vic) and which continues by virtue of section 515 of the Workplace Relations Act 1996 . [Schedule 1, item 22, subsection 32C(7)]
1.56 Contributions made by an employer in respect of employees where those contributions are made under, or in accordance with, a State industrial award are made in compliance with the choice of fund requirements. [Schedule 1, item 13, definition of State industrial award and item 22, subsection 32C(8)]
1.57 The intention in respect of employees employed under State awards has always been that they would be exempt from the Commonwealth choice rules, irrespective of the level of superannuation support provided. For example, a contribution of 9% of an employees salary, paid to a State award fund, will satisfy the choice rules even though only 3% is required under the award.
Contributions under prescribed laws
1.58 In some cases an employer is obliged under law to make contributions for the benefit of an employee to a particular superannuation fund. In these cases, the employers contributions may be taken to be made in compliance with the choice of fund requirements because the fund to which the contributions are made is an unfunded public sector scheme [Schedule 1, item 22, paragraph 32C(1)(b)] or the contributions are made under, or in accordance with, a State industrial award [Schedule 1, item 22, subsection 32C(8)] .
1.59 However, if the relevant scheme is not an unfunded public sector scheme and the contributions are not made under, or in accordance with, a State award, the employer faces the problem of having to satisfy both the choice of fund requirements and the terms of the relevant law. This could mean that the employer would need to contribute twice the minimum level of superannuation contributions in order to avoid any superannuation guarantee charge.
1.60 Regulations will be made which prescribe laws which cause this kind of difficulty for employers. Contributions made under a prescribed law will be taken to be made in compliance with the choice of fund requirements. The use of regulations allows a flexible approach under which each case where a law potentially causes difficulties may be considered on its merits, and be prescribed if appropriate. [Schedule 1, item 22, subsection 32C(9)]
Unfunded public sector schemes
1.61 Generally, where employers provide superannuation support on behalf of employees through unfunded public sector schemes, any contributions made (or notionally made) are in compliance with the choice of fund requirements. However, this rule does not apply in respect of Commonwealth employees who are members of the CSS or the PSS. [Schedule 1, item 15, definition of unfunded public sector scheme in subsection 6(1) and item 22, paragraph 32C(1)(b)]
1.62 The minimum level of contributions required under the SGAA 1992 is calculated as a percentage of each employees notional earnings base. Generally, an employees notional earnings base will be one of the following figures:
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- ordinary time earnings, which is basically the employees earnings for their ordinary hours of work;
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- a measure of the employees earnings used in an applicable authority (this is defined under subsection 13(5) of the SGAA 1992 as an award, a law, an occupational superannuation agreement or a superannuation scheme) under which the employers superannuation obligation is determined. This earnings base is only available where the employer was contributing for an employee in accordance with the award, or under a like authority since before 21 August 1991; or
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- if the employer provides superannuation support in accordance with an award, then the award earnings base.
1.63 Compliance with the choice of fund requirements could mean that an employer faces a higher notional earnings base in respect of an employee, and accordingly a higher cost in meeting their SG obligations. This would occur, for example, where an employer currently contributes on behalf of an employee under an award to a particular fund named in the award, but under choice is required to contribute for the employee to another fund that the employee chooses.
1.64 To prevent this occurring, an employer is able to use an existing notional earnings base for an employee where it is reasonable to assume, if the choice of fund requirements did not apply, the employer would instead have contributed to another fund which gives rise to the existing notional earnings base. [Schedule 1, item 22, section 32Y]
1.65 For example, where an employer currently contributes for an employee to a particular fund in accordance with an award, it would be reasonable to assume the employer would have continued to contribute to that fund in the absence of the choice of fund requirements. It would also be reasonable to assume the employer would have contributed in accordance with the award for a new employee, where that employer would have been required to make contributions to a particular fund on behalf of that employee in accordance with the award.
1.66 The other fund in respect of which it is reasonable to assume contributions would have been made, or support provided, if the choice of fund requirements did not apply, may be either a superannuation fund that is not a defined benefit scheme or a defined benefit scheme. The preserved notional earnings bases are, however, only used where an employer is contributing on behalf of an employee to a superannuation fund that is not a defined benefit scheme, since it is only in these cases that the notional earnings base is directly used in reducing the SG charge percentage. The section only applies if the employer is contributing to a chosen fund or a default fund. It does not apply if contributions are made under a workplace agreement. [Schedule 1, item 22, subsections 32Y(1) to (4)]
1.67 This bill makes a requirement in a Federal award to make contributions on behalf of an employee to a particular superannuation fund unenforceable to the extent that the employer instead makes the contributions to another fund in compliance with the choice of fund requirements [Schedule 1, item 22, section 32Z] . Employers of employees covered by Federal awards are accordingly free to comply with the choice of fund requirements without facing action for non-compliance with an award (note that contributions made under, or in accordance with, State awards are effectively excluded from the choice of fund requirements - see paragraph 1.56).
1.68 The provision overrides Federal awards only to the extent a contribution is made to another fund that is a chosen fund or a default fund. Accordingly, if an award requires contributions of 6% of salary to a particular fund, and contributions equivalent to 4% of salary are instead made to a chosen fund of the employee, the award remains enforceable in respect of the remaining 2% of salary payable as superannuation contributions.
1.69 Similarly, other conditions in awards relating to superannuation would not be affected (e.g. where the frequency of contributions is specified in the award this would not be affected). The provision is aimed only at allowing superannuation to be paid to a chosen (or default) fund rather than to a particular fund nominated in a Federal award, so that an employer does not face the possibility of the award being enforced in respect of an amount already paid to a chosen (or default) fund.
1.70 Employers are protected from liability to compensate any person for loss or damage arising from anything done by the employer in complying with the choice of fund requirements. [Schedule 1, item 22, section 32ZA]
1.71 Accordingly, if an employee selects the default fund from material provided by the trustee or RSA provider through their employer in compliance with the choice of fund requirements, and the fund subsequently performs badly, the employer would not be liable to compensate the employee.
1.72 The protection does not extend to things done by the employer which are not undertaken in complying with the choice of fund requirements.
Application to Commonwealth departments
1.73 The Commonwealth as an employer currently has overall responsibility for ensuring that individual departments and certain authorities meet their SG obligations. This bill contains amendments which have the effect of treating individual Commonwealth departments as separate employers [Schedule 1, items 1 to 5] . The provisions, as amended, will be similar to those in the Fringe Benefits (Application to the Commonwealth) Act 1986 .
1.74 This means that individual departments and certain authorities will be responsible for satisfying their SG obligations, including the choice of fund requirements.
1.75 If a standard choice form is not provided to an employee when and how it is required to be provided, it is an offence of strict liability that is subject to a maximum penalty of 60 penalty units. [Schedule 1, item 22, subsections 32N(7) and (8) and sections 32T to 32V]
1.76 A contribution to a fund or an RSA that is not in compliance with the choice of fund requirements is an offence of strict liability and is subject to a maximum penalty of 60 penalty units. [Schedule 1, item 22, sections 32T and 32U]
1.77 The Commissioner may issue a contravention notice to the employer if he has reason to believe that the employer has contravened the circumstances as outlined in paragraphs 1.74 and 1.75. [Schedule 1, item 22, section 32W]
Application and transitional provisions
1.78 Contributions made from 1 July 2004 must be made in accordance with the choice of fund requirements set out in Part 3A.
1.79 If a contribution is made after the employee ceased employment but is nevertheless made in respect of the employment, the contribution is taken to be made immediately before the employee ceased employment. [Schedule 1, item 22, subsection 32C(10)]