In June 2021, the “Your Future, Your Super” legislation was enacted by federal parliament in an effort to improve outcomes for individuals in the Australian superannuation system. One measure in this legislation is part of a broader intention to remove multiple super accounts for individuals. Individuals with multiple super accounts can have their retirement savings eroded by excess fees being charged against their accounts.
The newly enacted legislation introduces a new step to an employer’s super guarantee obligations from 1 November 2021. The new step forms part of the “choice of fund” rules that generally come into play when a new employee is hired.
Change to the choice of fund rules
When an employer takes on a new staff member, including contractors that come within the scope for super guarantee liability, they must abide by the choice of fund rules. Failure to comply with the rules may result in an increased superannuation guarantee charge being levied against the employer.
To comply with the choice of fund rules, an employer must make contributions to either:
- a particular fund after an employee initiates the choice process by giving written notice to the employer proposing the fund, or
- a fund chosen by an employee after the employer initiates the choice process by giving a standard choice form to the employee.
If neither of these 2 things happen, from 1 November 2021 an employer will need to ask the ATO whether their new employee has a “stapled” super fund.
What is a stapled fund?
The term stapled fund is used to describe a single default super account that is attached to an individual. When the ATO is requested to provide an employer with a stapled super fund for an individual, the super account will be selected based on information it periodically receives from reports from regulated funds. Generally, where an individual holds an existing eligible super account, this will be the nominated stapled account.
An eligible stapled super account will have to be with a complying superannuation scheme, with the individual listed as a current member. The ATO will administer tie-breaker rules where more than one account is active, including:
- whether the ATO has previously identified an account as a stapled super fund
- how recently contributions have been made to each of the accounts
- the account balances, and
- how recently each of the accounts were created.
Requesting stapled super fund details
The stapled super fund request facility will be located with ATO online services. As a tax practitioner, you may have access to this request for your clients.
Inside ATO online services, the new employee’s details will need to be provided in the request. The quickest way to find the stapled fund is for the employee’s TFN to be provided, although this is not mandatory.
The ATO has stated that its online system should be able to provide stapled super fund details within minutes, and the employee themselves will be notified.
Why the change?
This additional step in super guarantee requirements attempts to ensure that individuals have less chance of inadvertently having multiple super accounts. While some individuals may want to have multiple super accounts as a method of diversification, for many this can result in unintended consequences such as:
- excess fees
- unnecessary insurance, and
- lost money.
Ensuring super guarantee obligations are met
The easiest way for an employer to meet their super guarantee obligations is by providing a new employee with the ATO’s superannuation standard choice form when they commence employment. A completed standard choice form with adequate information is enough for an employer to make super payments and satisfy their obligations.
Otherwise, an employee for super guarantee purposes may provide their employer with a written notice of where to direct future super payments. When this occurs, an employer must ensure that this direction is accompanied by written evidence that the chosen fund is able to accept the super guarantee payments. Generally, this will be a super fund compliance statement.
If neither of these 2 steps has been completed, then an employer is required to ask the ATO for the individual’s stapled fund. However, in certain circumstances, the ATO may not be able to make a stapled fund determination. Also, the stapled fund itself may reject the contribution. If all avenues are exhausted, the last resort for an employer from 1 November 2021 is to make a super guarantee payment into their default fund.
Explore further — CCH iQ — Super guarantee changes for employers with introduction of stapled super funds