Superannuation
Choice of fund
Choice of fund is the right of most employees to choose which complying super fund their employer pays their super guarantee contributions into.
Choice of fund is the rule that allows most employees to pick the super fund that receives their employer's super guarantee contributions. If the employee makes a choice, the employer must pay into that fund, as long as it is a complying fund that can accept the contributions. The rule exists so that workers can consolidate their super and avoid having several accounts with multiple sets of fees.
Employers must offer new employees the opportunity to choose within 28 days of starting. They do this by giving a standard choice form, available from the ATO, or by accepting the employee's request in the correct format. If the employee does not choose, the employer may be able to pay into a stapled fund, which is the employee's existing fund, identified through ATO online services, or into the employer's default fund if the employee has no existing fund. The rules on stapling were introduced to reduce duplicate accounts.
Employers should check that the fund the employee nominates is a complying fund and can receive contributions, and obtain correct details such as the fund's ABN, USI and bank details. Some employees nominate a self-managed super fund, in which case the employer needs the fund's ABN, bank details and electronic service address. Using the wrong details can cause contributions to be rejected, which might lead to late payment and the super guarantee charge.
An employee can change their fund at any time, and the employer must generally act on the change within a set period, which the ATO website explains. Some employees, such as those covered by certain enterprise agreements or awards, may not have choice of fund, and in those cases the employer must follow the instrument. If in doubt, an employer should check their award or agreement.
Choice of fund does not involve GST. Super contributions are outside the GST system and no credits are claimed. However, a good process around choice of fund is part of good payroll administration, together with TFN declaration and Single Touch Payroll. Employers who use a super clearing house will need to enter each employee's fund details correctly in the system.
A common mistake is to continue paying into an old default fund after an employee has told the employer they want a different fund. Another is to forget to offer choice to new employees at all, which can be a compliance breach. Keep records of the choice forms provided and returned.
This is general information only, so confirm your requirements with the ATO or a registered tax professional.
Worked example
Zoe starts a new job on 1 March. Her employer gives her a standard choice form within 28 days. Zoe nominates her industry super fund. At the end of the quarter, Zoe's ordinary time earnings are $12,000. Assuming a hypothetical rate of 10% to show the arithmetic, the employer pays $12,000 x 10% = $1,200 into Zoe's chosen fund by the due date, and not into the employer's default fund. The real rate is the legislated one.
Practical tips
- Give every new employee a choice of fund form within 28 days of starting, and keep a copy of what they return.
- Verify fund details, including the ABN and member number, before sending contributions, to avoid rejected payments.
- Check whether your employee is covered by an award or agreement that limits choice of fund.