03.How to use fund choice
Changing super funds is a big and important decision that shouldn’t be rushed. If your employer gives you a Standard Choice Form (SCF), that form will specify which default fund your employer has chosen. The action you take will depend on whether your employer has nominated your existing fund or a new fund as the default.
If the default fund specified on the SCF is your existing fund, you can:
1. Do nothing. If you’re happy with your current fund there’s no need to change.
2. Change funds. There are several steps you’ll need to complete to successfully change to a new fund:
- Find a new fund worthy of switching to.
- Complete a member application form and arrange to transfer any existing super benefits to the new fund.
- Complete Section B, questions one, two, three and four, of the SCF. Attach contribution and payment requirements for the new fund as explained in the SCF.
- Unless you’re already a member of a company or public sector fund, you can only choose from three types of super funds: industry funds; retail funds or master trusts; or self-managed funds.
If the default fund your employer nominates on the SCF is NOT your existing fund, you have the following options:
1. Do nothing. If you’re happy with the new default fund, you don’t have to do anything. Your employer will start paying your compulsory contributions into that fund. However, before accepting your employer’s default fund, make sure it gives you what you want in terms of returns, fees, insurance and investment options. If you’re happy with it, consider closing other funds and rolling all your super savings into the one account to avoid paying multiple fees.
2. Choose to remain in your existing fund.
TRAP: if you don’t actively choose your existing fund, your employer’s contributions won’t continue to be paid into it. You will need to complete Part B, questions one and four on the SCF to keep your existing fund.
3. Choose another fund.
TRAP: in some circumstances your employer can still knock back the fund you choose. A fund may require your employer to enter a participation agreement before it will accept Super Guarantee payments. If your employer refuses, you’ll have to find another fund. We think this loophole in the new rules could make it very difficult for some employees to exercise their rights under super choice and may force them to accept the employer’s default fund even if it doesn't meet their needs.
If you decide to change funds (and your employer accepts the fund chosen) your employer must start making your compulsory SG payments to the new fund within two months of you returning your SCF.
Case study: farewell multiple funds
The big advantage of the new choice rules is that they should make super much more portable. Casual workers will be able to have a single fund rather than multiple funds to meet the needs of different employers. You shouldn't have to change funds every time you change jobs.
Mary is a casual worker who can’t wait for fund choice. She works in the ski industry and can have up to four jobs at a time in one season, and then does office temping outside the ski season. Each of her employers pays super contributions into different funds so Mary ends up with multiple accounts with small balances.
“No one ever talks about the consequences of casual work and the effect of multiple funds on the size of a casual (or part-time) worker’s retirement benefit,” explains Mary.
She has done her homework, however, and is fully aware of the impact of paying super fees more than once. She has combined her many funds and now has only three super fund accounts. She plans to have only one when fund choice arrives in July 2005 and she can finally choose the fund where her employers pay her Superannuation Guarantee.