As an employer you have to select a default super fund to make super guarantee payments for your employees who have not chosen their own fund.
Here we explain how to choose a super fund for your employees.
What the super fund you choose must offer
The fund you choose needs to be a fund that is authorised to offer a MySuper product – these are known as ’employer-nominated’ or ‘default funds’.
For more detail on your super obligations as an employer see the Australian Taxation Office’s article on setting up super.
Comparing super funds for your employees
Industrial awards
When selecting a super fund start by checking the industrial awards applicable to your employees. There may be particular funds listed as default funds for your industry under an award.
Fees
Check the fees your employees will be charged by the fund. Low fees are generally good, but you should look at what your employees will get for their money.
Investment options
MySuper products must have a diversified investment strategy. Risks, returns and fees can vary. For example, a MySuper product that has high fees and high performance might offer a very aggressive asset allocation and take risks to get those returns.
Consider the types of employees you have in the business. For example, if the average age of your employees is under 30 you might look for a more aggressive fund.
A fund that offers a MySuper product may also offer a range of other different investment options, such as cash or shares. Your employees may find it helpful to have access to these options if they want to change their investment mix at a later stage. Some MySuper products provide a lifecycle approach to super where the investment mix changes as members get older.
See our MySuper webpage to understand the difference between a single diversified investment strategy and a lifecycle approach.
Performance
Pick a fund that has performed well over (at least) the last 5 years. Do not chase last year’s best performer. The fund may have higher fees but strong performance might justify the expense.
Insurance
MySuper products must offer insurance on an ‘opt -out’ basis. Consider the cost and what your employees get for their money. Cheap insurance cover may have significant exclusions. For example, casual or part-time workers may not be adequately covered. Conversely, paying more for insurance can affect super balances. You need to weigh up the pros and cons.
Extra benefits
What else does the fund offer? Some super funds offer educational seminars and advice. Does the super fund have a good website that helps you find information easily?
Beware super funds offering incentives
Superannuation legislation prohibits incentives being offered to employers on condition that their employees join that fund. Inducements may take any form, and include corporate hospitality, holidays, or discounted rates on products or services.
For example, a super fund cannot offer you tickets to a sporting event or discounted rates on loans on the condition you sign up new employees to their fund.
Case study: Jane’s super fund offers tickets to events
Jane has just started a small business and is considering what default
fund is appropriate for her staff. Jane makes some enquiries with an industry fund about what they offer. The fund tells Jane they will send her tickets to a major sporting event if she agrees to sign up new employees to their default fund.
Jane is worried that she shouldn’t be accepting these gifts and selects another fund for her sales team.
Case study: Michael’s super fund offers discounts
Michael runs a small manufacturing business. He is considering selecting a new default super fund for his staff. Michael is a long term customer of ABC Bank that also offers a super fund. In conversations with the bank, they tell Michael that if he signs up some of his employees to their super fund, the bank will reduce the interest rate on Michael’s business loan and offer him a new overdraft facility.
This raises alarm bells for Michael because even though he has a good relationship with the bank, he knows the bank is not allowed to offer him this type of inducement. Michael decides not to go with ABC Bank’s super fund.
If you think you’ve been offered unlawful inducements by a super fund you can report it to ASIC.
Make sure any incentives do not distract you from making an informed decision. Focus on what’s best for your employees.
You may also be contacted by funds telling you about their MySuper product. Some advertising from super funds say that one fund is better with insurance, returns or fees than another. Be wary about these comparisons as they may not be comparing like with like.
Always take time to carefully consider information from super funds and seek a professional opinion if you need to.
Picking a super fund for your staff is an important decision. Take the time to do your research and seek help if you need it.
Please contact us on (03) 9769 9500 if we can be of assistance on this topic .
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