Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2013-2014-2015-2016
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
SUPERANNUATION LEGISLATION AMENDMENT (CHOICE OF FUND)
BILL 2016
EXPLANATORY MEMORANDUM
(Circulated by authority of the
Minister for Small Business and Assistant Treasurer, the Hon Kelly O'Dwyer MP)
Table of contents
Glossary ................................................................................................. 1
General outline and financial impact....................................................... 3
Chapter 1 Extending superannuation choice to workplace
determinations and enterprise agreements .................. 5
Chapter 2 Regulation impact statement ........................................13
Chapter 3 Statement of Compatibility with Human Rights ............39
Index......................................................................................................41
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
ATO Australian Taxation Office
Bill Superannuation Legislation Amendment
(Choice of Fund) Bill 2016
FW Act Fair Work Act 2009
FWC Fair Work Commission
RIS Regulation Impact Statement
SG Superannuation guarantee
SGAA Superannuation Guarantee (Administration)
Act 1992
Treasury Department of the Treasury
1
General outline and financial impact
Extending superannuation choice to workplace
determinations and enterprise agreements
The Superannuation Legislation Amendment (Choice of Fund) Bill 2016
(Bill) amends the Superannuation Guarantee (Administration) Act 1992 to
ensure employees under new workplace determinations or enterprise
agreements that are made from 1 July 2016 have an opportunity to
separately choose their superannuation fund.
Date of effect: 1 July 2016
Proposal announced: 20 October 2015
Financial impact: Nil.
Human rights implications: This Bill does not raise any human rights
issues. See Statement of Compatibility with Human Rights -- Chapter 3,
paragraphs 3.1 to 3.4.
Compliance cost impact: Average annual regulatory cost of
$3.965 million.
Summary of regulation impact statement
Regulation impact on business
Impact: Total annual average regulatory cost is $3.965 million;
$1.564 million for business and superannuation funds and $2.401 million
for individuals.
Main points:
• Some employees cannot choose the superannuation fund into
which their compulsory employer superannuation is paid.
This prevents them making key decisions around their
retirement savings, can result in the payment of unnecessary
fees and insurance premiums, and can reduce competition
between superannuation funds.
3
Superannuation Legislation Amendment (Choice of Fund) Bill 2016
• Choice of fund for compulsory contributions can be restricted
by some employers under Commonwealth legislation.
Without Government action individuals under certain
collective agreements will continue to face restricted choice
of fund.
• Three options were considered.
- Maintain the status quo (Option 1)
- Extend choice to employees under enterprise
agreements and workplace determinations made after
1 July 2016 (Option 2)
- Extend choice to all employees under existing and
new enterprise agreements and workplace determinations
after 1 July 2016, and employers must offer a choice of fund
form to all existing employees (Option 3)
• Treasury undertook public consultation (for 6 weeks) on draft
legislation and explanatory material for Option 2.
• Option 2 is the best option because it extends choice in a
meaningful way while minimising compliance costs for
employers.
• Legislative amendments are required to implement Option 2.
The associated obligations on industry are an established part
of the superannuation regime and can be readily made. There
are multiple official Government-Industry working groups
for participants in the superannuation industry to
communicate any issues with the implementation of the
policy. The Australian Taxation Office also provides
guidance on compliance with superannuation obligations.
4
Chapter 1
Extending superannuation choice to
workplace determinations and enterprise
agreements
Outline of chapter
1.1 This Bill amends the Superannuation Guarantee
(Administration) Act 1992 (SGAA) to ensure employees under new
workplace determinations or enterprise agreements made from
1 July 2016 have an opportunity to separately choose the superannuation
fund for their compulsory employer contributions.
1.2 All legislative references in this Chapter are to the SGAA unless
otherwise indicated.
Context of amendments
1.3 An important part of Australia's superannuation system is the
provision of compulsory employer contributions by employers to
complying superannuation funds in respect of their employees.
1.4 Currently some employees do not have the opportunity to
choose their own superannuation fund. Where an employer makes
contributions under, or in accordance with, an enterprise agreement or
workplace determination, employers satisfy the choice of fund
requirements in the SGAA. These agreements or determinations may
specify a given superannuation fund, or a number of superannuation
funds, that an employer may contribute to for the benefit of the employee.
Summary of new law
1.5 The amendments will enable employees under workplace
determinations or enterprise agreements made from 1 July 2016 to choose
their own superannuation fund.
5
Superannuation Legislation Amendment (Choice of Fund) Bill 2016
Comparison of key features of new law and current law
New law Current law
Compulsory employer Compulsory employer
superannuation contributions to a superannuation contributions to a
fund under, or in accordance with, a fund under, or in accordance with, a
workplace determination or enterprise workplace determination or enterprise
agreement made before 1 July 2016 agreement comply with the choice of
will comply with the choice of fund fund requirements.
requirements.
An employee will be able to choose Employees of employers that make
their own superannuation fund where compulsory employer superannuation
they are employed under a workplace contributions to a fund under, or in
determination or enterprise agreement accordance with, a workplace
that is made from 1 July 2016. New determination or an enterprise
employees to whom such a agreement, may not be able to choose
determination or agreement applies their own superannuation fund.
must be provided with a standard
choice form and if there is no chosen
fund for a new employee the default
fund arrangements apply. An
employer does not have to provide
existing employees with a form
unless requested once a new
determination or agreement is made.
Where there is no chosen fund for an
existing employee, an employer that
continues to make compulsory
contributions for that employee with
the same fund, in accordance with the
previous determination or agreement,
will comply with the choice of fund
requirements.
An employer will not have an An employer may have an increase in
increase in the superannuation the superannuation guarantee shortfall
guarantee shortfall in a given quarter in a given quarter for an employee
for an employee who is member of a who is member of a defined benefit
defined benefit scheme, where the scheme, where the employee's benefit
employee's benefit in the scheme in the scheme would not be affected if
would not be affected if compulsory compulsory superannuation
superannuation contributions were contributions were made to another
made to another fund. fund.
6
Extending superannuation choice to workplace determinations and enterprise agreements
Detailed explanation of new law
Existing arrangements for choice of fund
1.6 Part 3A sets out the choice of fund requirements that employers
must comply with to avoid penalties in the form of increased
superannuation guarantee charges. These requirements include offering
employees a choice of superannuation fund and providing them with a
standard choice form in particular circumstances.
1.7 Division 2 of Part 3A outlines when contributions made by an
employer satisfy the choice of fund requirements. Under
subsection 32C(1) contributions made to a chosen fund for an employee
or to certain unfunded public sector schemes satisfy the choice of fund
requirements. Subsection 32C(2) sets out contributions that satisfy the
choice of fund requirements where there is no chosen fund and those
contributions are made to a default fund. The remaining subsections in
section 32C set out other circumstances where contributions made to a
fund are in compliance with the choice of fund requirements.
1.8 Specifically, subsection 32C(6) provides that a contribution is
made in compliance with the choice of fund requirements if the
contribution, or a part of the contribution, is made under, or in accordance
with, certain specified industrial agreements, awards, a workplace
determination or an enterprise agreement.
1.9 If an employer makes contributions that do not comply with the
choice of fund requirements the employer will have an increased
superannuation guarantee shortfall for the quarter under either subsection
19(2A) or (2B). This increases the employer's liability to superannuation
guarantee charge which is paid to the Commissioner of Taxation in
respect of an employee. Contributions made to a defined benefit scheme
do not attract an increase in superannuation guarantee shortfall where, for
a given quarter, the scheme is in surplus or the employee concerned has
accrued their maximum benefit in the scheme.
1.10 Division 6 of Part 3A outlines employer obligations to provide
standard choice forms to employees. Section 32N generally requires that
an employer provide a standard choice form to an employee within
28 days of each of the following:
• the employee commencing employment;
• the employer receiving a written request from an employee;
• the employer becoming aware of a chosen fund ceasing to be
available for contributions; or
7
Superannuation Legislation Amendment (Choice of Fund) Bill 2016
• the employer changing default fund arrangements.
1.11 Section 32NA sets out the circumstances when an employer
does not need to provide a standard choice form, including if the employer
is making contributions of a kind mentioned in subsections 32C(3) to (9)
for the benefit of the employee.
Defined benefit schemes
1.12 Division 4 of Part 3A sets out a process to be followed when an
employee is choosing a fund. Subsection 32F(3) ensures that employees
who are existing members of certain defined benefit schemes cannot
choose another fund. These are schemes where a member's retirement,
resignation or retrenchment benefit in the fund would remain unchanged if
the employer made contributions to another fund under the choice of fund
arrangements.
1.13 According to subsections 32NA(7), (8) and (9), an employer is
not required to give an employee who is an existing member of a defined
benefit scheme a standard choice form where:
• the scheme is in surplus and subsection 20(2) is satisfied;
• the employee has accrued their maximum benefit in the
scheme and subsection 20(3) is satisfied; or
• the employee's benefits in the scheme will remain the same if
the employer makes contributions to another fund for the
employee.
1.14 These provisions effectively deny choice of fund to certain
existing employees who are members of defined benefit schemes.
Employers who do not provide choice according to these provisions can
be relieved from an increase in their superannuation guarantee shortfall
under subsection 19(2B) if section 20 applies.
1.15 Section 20 applies to an employer where the employee is a
member of a defined benefit scheme and either subsection 20(2) or (3) is
satisfied. Subsection 20(2) is satisfied if the employee has been a member
of the defined benefit fund since before 1 July 2005 and the fund is in
surplus. Subsection 20(3) is satisfied if the member has accrued their
maximum benefit in the fund. Subsections 20(2) and (3) mirror
subsections 32NA(7) and (8), however, section 20 does not contain an
equivalent to subsection 32NA(9).
8
Extending superannuation choice to workplace determinations and enterprise agreements
Extending choice of fund
1.16 This Bill amends subsection 32C(6) to limit the circumstances in
which an employer can satisfy the choice of fund requirements by
contributing to a superannuation fund under, or in accordance with, a
workplace determination or enterprise agreement to where that
determination or agreement was made before 1 July 2016.
1.17 Where a workplace determination or enterprise agreement is
made on or after 1 July 2016, an employer will need to allow employees
to choose their own superannuation fund (unless other circumstances
exempt the employer from doing so). [Schedule 1, items 5 and 6,
paragraphs 32C(6)(g) and (h)]
1.18 This will require the employer to give a standard choice form to
an employee in the circumstances set out in section 32N, including on
commencement of employment and on written request from an employee.
A new employee will be able to choose a fund for their compulsory
superannuation contributions. If a new employee does not choose a fund,
the employer must contribute to the fund that is specified in the standard
choice form provided in accordance with the default fund provisions in
subsection 32C(2).
1.19 Existing employees will not need to be given a standard choice
form where a workplace determination or enterprise agreement is made on
or after 1 July 2016. However they will be able to request a choice of fund
form from their employer and the employer will be required to act on this
request in accordance with Division 4 of Part 3A.
1.20 Where an existing employee does not choose their own
superannuation fund, the employer will be able to continue to make
compulsory superannuation contributions to the same fund that the
employer previously contributed to for the employee under, or in
accordance with a workplace determination or enterprise agreement made
before 1 July 2016. An employer will also be able to specify this fund as a
default fund in a standard choice form provided on request to the existing
employee. [Schedule 1, item 7, subsection 32C(6AA)]
1.21 This Bill does not make any changes to the default fund
provisions.
1.22 Where a workplace determination or enterprise agreement made
after 1 July 2016 includes a term that restricts choice (for example, if the
determination or agreement was made without appreciating the changes
made by this Bill), such a term will not be enforceable under section 32Z
to the extent that the employer instead makes contributions to an
employee's chosen fund. Examples of terms which restrict choice include
9
Superannuation Legislation Amendment (Choice of Fund) Bill 2016
terms that specify the name of the fund to which the employer must
contribute, or terms that list several funds the employer must choose
between to make contributions to.
1.23 The amendments to the choice of fund requirements also apply
to employers who make contributions to defined benefit schemes on
behalf of their employees who are members. The exemptions from
providing choice to employees who are existing members of certain
defined benefit schemes continue to apply. Existing employees who are
not defined benefit members and who become newly eligible to join a
defined benefit scheme do not need to be given a standard choice form
unless requested (or another subsection of section 32N applies). New
employees who are not existing defined benefit members but who are
eligible to join a defined benefit scheme must be given a standard choice
form within 28 days of commencing employment. Once an employee is a
member of a defined benefit scheme the exemptions from the choice of
fund requirements will apply where relevant.
1.24 The amendments to the choice of fund requirements only apply
to workplace determinations or enterprise agreements made on or after
1 July 2016. They do not apply to workplace determinations or enterprise
agreements made before 1 July 2016. Enterprise agreements that are made
before 1 July 2016, but which apply after 1 July 2016, will not be affected
by these amendments. When a determination or agreement is 'made' and
'applies' is determined in accordance with the Fair Work Act 2009
(FW Act).
1.25 The consequences of a workplace determination or enterprise
agreement applying to an employee and employer are that the
determination or agreement imposes obligations on the parties and gives
them entitlements. Subsection 32C(6) provides that a contribution made
under, or in accordance with certain specified industrial instruments
complies with the choice of fund requirements. For a contribution to be
made 'under, or in accordance with' a listed industrial instrument it must
apply for the purposes of the FW Act.
1.26 When a workplace determination or enterprise agreement is
'made' and 'applies' for the purposes of the FW Act.
1.27 The terms 'workplace determination' and 'enterprise agreement'
have the same meaning they have in the FW Act. Whether a determination
or agreement is 'made' and 'applies' is determined in accordance with the
FW Act.
1.28 A workplace determination is made by the Fair Work
Commission (FWC) and operates from the day on which it is made. The
FW Act applies to a workplace determination that is in operation as if it
10
Extending superannuation choice to workplace determinations and enterprise agreements
were an enterprise agreement that is in operation (with some exceptions).
This means that a workplace determination will also apply to an
employee, employer or employee organisation once it is in operation and
covers the employee, employer or organisation.
1.29 An enterprise agreement is made when a majority of employees
vote to approve the agreement. But the enterprise agreement does not
operate until at least seven days after the agreement is approved by the
FWC. An enterprise agreement applies to an employee, employer or
employee organisation if it is in operation and covers the employee,
employer or organisation.
1.30 In the time between when an enterprise agreement is made and
when it applies, employment rights and obligations are governed by the
existing agreement. This means that during this period, an employer
should continue to make contributions in accordance with the existing
agreement that applies to the employee and employer.
Defined benefit scheme exemption from increased shortfall
1.31 The amendments made by this Bill recognise a further case
where there is no increase in the quarterly superannuation guarantee
shortfall for an employer who makes contributions in respect of an
employee who is a member of a defined benefit scheme. This exclusion
will apply where an employee cannot choose a fund under Division 4 of
Part 3A because their retirement, resignation or retrenchment benefit in a
defined benefit scheme would not be affected if compulsory contributions
were made to another fund. This will ensure that employers cannot be
penalised for failing to technically comply with the choice provisions, if
there is no chosen fund for an employee, notwithstanding that the
employee concerned is unable to choose a fund under subsection 32F(3).
[Schedule 1, items 1 to 4, paragraph 19(2B)(c), subsection 20(1), subsection 20(3A) and
section 20]
1.32 This is a technical amendment to clarify that employers do not
have an increased individual superannuation guarantee shortfall under
subsection 19(2B) where the employer has not given an employee a
choice of fund form in accordance with subsection 32NA(9).
Application and transitional provisions
1.33 The amendments made by this Bill commence on 1 July 2016.
11
Chapter 2
Regulation impact statement
Context
2.1 In 2005 the Howard Government introduced a choice of
superannuation fund regime. This regime allows most employees to select
the superannuation fund into which their superannuation guarantee (SG)
contributions are made, so long as the fund satisfies certain eligibility
requirements.
2.2 However, there are legislative exceptions to this rule that restrict
choice, the most common of which is where employee conditions are
negotiated under certain collective agreements.
2.3 The final report of the Financial System Inquiry
(December 2014) recommended that restrictions on an individual's choice
of fund be removed on the basis that "as a general principle everyone
should be able to choose the fund that receives their SG contributions".
Remaining restrictions on choice of fund
2.4 Employers are generally required to provide their employees
with a standard choice form within 28 days of the employee commencing
employment.1 If an employee does not choose a fund, either by giving
written notice to the employer or by completing the standard choice form,
employers are required to contribute to their default fund.
Non-compliance with these requirements (the 'choice of fund
requirements') may result in an employer becoming liable to pay a SG
shortfall on top of the 9.5 per cent contribution.2
2.5 Certain other contributions are also deemed to be compliant with
current choice of fund requirements, including contributions made to
funds specified under certain industrial instruments. These include:
• Enterprise agreements agreed to collectively by employees
and their employer. These agreements can contain
superannuation clauses, which may:
1
Employers do not need to provide a choice of fund form to temporary residents.
2
Employers who contribute on behalf of some employees that are members of defined benefit
schemes are not liable for the shortfall, and do not have to offer choice of fund.
13
Superannuation Legislation Amendment (Choice of Fund) Bill 2016
- Nominate a default fund for employees who have not
exercised choice of fund;
- In some instances, deny employees choice of fund by:
i. mandating a particular fund for all employees
covered by the agreement, or
ii. mandating particular funds for different types
of employees (for example permanent and casual
employees); or
iii. limit choice by nominating a small list of
funds from which an employee may choose.
• Workplace determinations made where a Full Bench of the
Fair Work Commission (FWC) determines the terms and
conditions that will cover an employer and its employees.
Workplace determinations can only be made in special or
unusual circumstances, including where industrial action has
been terminated and the parties cannot agree on the terms of
an enterprise agreement within a given timeframe. These
types of instruments are uncommon but may also deny
employees choice of fund by mandating a particular fund for
all employees covered by the determination.
• Older forms of industrial instruments ('legacy agreements'
and 'legacy awards'). These instruments existed under
previous industrial relations laws and can no longer be made.
Some legacy agreements may still be in operation as the
agreement may not have been renewed or terminated. The
Department of Employment does not have data on the
prevalence of these agreements that are still in operation.
• State industrial awards and agreements, which continue to
apply to State public sector employers and parts of the
private sector in Western Australia, namely,
non-constitutional corporations (for example, sole traders,
partnerships and non-trading or financial corporations).
These may also include superannuation specific clauses that
may restrict choice of fund.
2.6 The effect of these exemptions is that some employees do not
have choice of fund.
14
Regulation impacts statement
2.7 While comprehensive data is not available, the Association of
Superannuation Funds of Australia estimated in 2012 that 20 per cent of
employees continue to have restricted or no choice of superannuation
fund. This is estimated to equate to around two million individuals.
2.8 Enterprise agreements are the most common mechanism by
which choice for individuals can be restricted through 'deemed choice'.
Furthermore, enterprise agreements and workplace determinations are the
only Federal instruments currently being made. As at June 2014, there
were approximately 2.5 million employees covered by current Federal
enterprise agreements. Some agreements have superannuation clauses that
restrict choice of fund. A Department of Employment sample of Federal
enterprise agreements estimates that around 30 per cent of individuals
employed under federal enterprise agreements faced some restriction on
their choice of fund in June 2014. The sample controlled for agreement
size, thus each category of agreement size is neither under nor
over-represented.
2.9 If an enterprise agreement provides for contributions to be paid
to a particular fund or to one of a limited list of funds, then the employer
must pay those contributions to the fund(s), or risk breaching the
agreement. The payment of contributions to the fund(s) is then deemed to
be compliant with the choice requirements, meaning that if the employer
contributes the appropriate amount to that fund within the correct
timeframe, they will not be liable to pay a penalty. In these circumstances,
individuals have no freedom to exclude themselves from the collective
agreement and exercise their own choice.
The Problem
2.10 Australia has a three-pillar approach to the provision of
retirement income. The three pillars comprise a means tested and publicly
funded age pension, a privately managed system of compulsory savings
based on the SG, and voluntary private savings (both inside and outside
superannuation). In the future, compulsory superannuation contributions
by employers will form a significant part of the retirement incomes of
many Australians.
2.11 The provision of regular SG contributions into funds by
employers on behalf of their eligible employees aims to overcome the
tendency for individuals to fail to save adequately for their retirement
during their working life. Both contributions and earnings benefit from
concessional tax treatment.
15
Superannuation Legislation Amendment (Choice of Fund) Bill 2016
2.12 The inability of some workers to choose the fund into which SG
contributions are made causes a range of issues.
2.13 Providing individuals the freedom to choose the fund into which
their employer makes contributions ensures that employees have the
freedom to plan their savings strategy for retirement.
2.14 When individuals commence a new job or employment
arrangement, they may desire to continue making contributions into an
existing superannuation account. They may also have a preference for a
particular fund based on the fees, returns or other benefits that fund
membership provides.
2.15 Forcing employees to have their contributions made into a
different fund chosen by their employer can result in some employees
having two (or more) funds open. This problem may be particularly
significant for individuals employed in multiple jobs (for example
casuals), who do not have a choice of fund.
2.16 It is not known exactly how many people have multiple accounts
due to restrictions on choice. The problem of multiple accounts is
widespread and can arise for a range of different reasons. The Australian
Taxation Office estimated that in 2015 45 per cent of working Australians
had more than one account. Given this is a large percentage, it is
reasonable to assume some overlap with the population who face
restricted choice.3 Frequent complaints to Ministers and the Department of
the Treasury (Treasury) by members of the public with restricted choice
confirm this.4
2.17 Maintaining more than one superannuation fund can result in
lower lifetime savings through duplicate fees, charges and insurance
premiums. It can also result in additional compliance costs from keeping
track of multiple accounts. Duplicate fees and premiums can result in
lower retirement balances.
2.18 While strong default settings are important in Australia's
superannuation system, the inability to exercise choice can also contribute
to individuals' disengagement with their superannuation savings.
3
Estimates of choice restriction among all employees, and the specific subset of individuals
employed under enterprise agreements are detailed below.
4
The Trade Union Royal Commission also provided case studies on employees with restricted
choice, including Katherine Cole, who wanted her compulsory contributions to be made to
her self-managed super fund, but could not because she had no choice of fund: see Chapters
6.2 and 6.3 of the Trade Union Royal Commission Interim Report.
16
Regulation impacts statement
2.19 Restricting the freedom of individuals to choose their fund may
also reduce competition between funds. Although some funds may benefit
from scale economies by having members channelled to them, their
incentive to compete on the basis of fees may be reduced.
2.20 Where employees are forced to open a new account upon
entering a new employment arrangement, the only option available to
them to consolidate their savings in a fund of their choice is to
periodically rollover monies from this account into their preferred fund.
This is likely to generate administrative compliance costs for both
individuals and funds while still having the costs of keeping more than
one account open. There may also be limits on their capacity to rollover
funds, including minimum balance requirements for partial rollovers.
The need for Government action
2.21 The current policy settings for the majority of employees seek to
provide choice of fund on the general principle that individuals should be
able to make decisions about their superannuation that suit their needs.
This freedom may help to boost the efficiency of the superannuation
system and to keep individuals engaged with their superannuation.5
2.22 However, under current legislative arrangements some
individuals may have their choice restricted by an enterprise agreement
that specifies a particular fund, as this is taken to indicate collective
choice. Individuals affected by such agreements can only attempt to
exercise choice by seeking to influence enterprise agreement negotiations
when they occur (most likely only once every several years, meaning this
may not be possible for casual workers or employees who join an
enterprise after negotiations have been finalised) or by ending their
employment arrangement.
2.23 Government action could expand the potential for people to
exercise choice of fund, while not limiting the ability for certain
agreements to specify default funds.
5
Although evidence detailed below suggests the rate of choice among superannuation account
holders may not be above 30 per cent.
17
Superannuation Legislation Amendment (Choice of Fund) Bill 2016
Policy options considered
2.24 There are a number of ways choice of fund requirements could
be extended to remove restrictions on individuals covered by certain
instruments.
2.25 Many agreements that specify a fund for employees are already
in existence and in force, while new agreements are made regularly across
a range of workplaces. Policy decisions need to be made about the
treatment of both ongoing and future agreements, and the various
compliance costs that will arise from mandating changes to agreements
across different workplaces and industries.
2.26 State awards and agreements that specify a fund for their
members are made by State Governments, and so are not considered.
Employers contributing on behalf of employees that are existing defined
benefit members rely on certain exemptions from choice to preserve the
funding arrangements of defined benefit schemes, and are also not being
considered. Legacy agreements which may still be in operation are not
being considered because they are uncommon, there is a lack of data on
them, and they may be replaced by enterprise agreements.
2.27 Enterprise agreements and workplace determinations are the
only new Federal industrial instruments that can be made, and so should
be central to any options.
2.28 The options considered are:
• Status quo (Option 1).
• Mandate that no restrictions on choice of fund remain for any
new enterprise agreements and workplace determination
made after 1 July 2016 and existing employees who want
choice must request a choice form (Option 2).
• Mandate that choice of fund be given to all employees under
existing and new enterprise agreements and workplace
determinations from 1 July 2016 (Option 3).
2.29 These options range from retaining current policy settings, to
introducing change in a gradual or rapid manner. These will have a
varying degree of impact on the problem outlined above, and generate a
varying degree of compliance and administrative costs for businesses,
funds and individuals.
18
Regulation impacts statement
2.30 As workplace determinations are uncommon, often occur in
place of an enterprise agreement (for example, when terms cannot be
agreed), and affect the same stakeholders within the Federal industrial
relations system, only enterprise agreements are referred to below for
simplicity.
2.31 Options 2 and 3 would need legislative changes as the
exemptions from choice are in the Superannuation Guarantee
(Administration) Act 1992.
Likely Net Benefit of Options
Option 1: The status quo
2.32 Under this option, there would be no changes to legislation or
regulation to extend the choice of fund requirements to more employees.
2.33 Employees could still be denied choice by employers who rely
on exemptions from the choice of fund requirements.
2.34 Inefficiencies and inequities in the superannuation system which
result from the restriction of choice of fund, particularly around multiple
accounts and duplicate fees paid by fund members, would remain and
continue to reduce the savings available for retirement income in the long
term.
2.35 There may be some benefits to employees from collective
agreement on a particular fund, such as negotiating higher superannuation
contributions, advantageous insurance arrangements, or lower fees in
exchange for using an employer's fund exclusively. These benefits should
still be able to be negotiated taking into account choice of fund.
2.36 When the choice of fund regime was introduced and exemptions
were made, concerns were raised about the compliance costs of employers
having to make contributions to multiple funds. The Final Report to the
Financial System Inquiry noted that changes in technology, such as
SuperStream and clearing houses, have reduced these costs - see below in
Option 2 for further information.
Costs generated by duplicated fees
2.37 While choice of fund remains restricted, some employees will
face additional fees paid for the maintenance of multiple funds.
19
Superannuation Legislation Amendment (Choice of Fund) Bill 2016
2.38 If upon commencing a new employment arrangement, an
employee is unable to direct their SG contributions to an existing fund,
they may not necessarily rollover monies from their existing fund into the
fund mandated by their enterprise agreement, as they may have a
preference for their existing fund (for instance, they might view this fund
as delivering better value returns). Instead, they may maintain both funds
in order to receive payments from their new employer while also retaining
existing money in the fund of their preference.
2.39 Individuals who work in multiple jobs as part time or casual
employees may be particularly vulnerable to restrictions on choice. If a
casual employee works under two different enterprise agreements and
each mandates a different fund, they would have no choice but to maintain
multiple funds (with associated fees) in order to receive their SG
payments.
2.40 In some cases, where individuals are disengaged from their
superannuation, they may be unaware that their savings are in multiple
accounts, or that funds can be rolled over, especially given that they are
not prompted by the need to complete a choice of fund form.
2.41 Multiple accounts will lead to a duplication of fees as the
individual pays to maintain accounts with both funds, substantially
increasing the cost of accruing savings for their retirement through the
superannuation system as demonstrated by the following example.
Example 2.1
Simon is a 40 year old customer service assistant. The enterprise
agreement with his current employer nominates a fund into which his
employer has to pay his superannuation contributions. He has $50,000
in Fund ABC from previous employment and $22,000 in Fund XYZ
that he accumulates under his current employer. As he did not have
choice of fund with his new employer (as is common in the retail
sector) he has two superannuation accounts that he has not
consolidated as he did not have the prompt of choice.
It is estimated that Simon pays around $600 in fees and insurance per
annum for his Fund XYZ superannuation account. These costs (which
are in addition to the costs associated with his preferred Fund ABC)
could be reduced or eliminated if he consolidated his superannuation
accounts into Fund ABC as he now pays two sets of fees and default
insurance.
20
Regulation impacts statement
2.42 Despite it being difficult to estimate the number of individuals
who would be advantaged by access to the choice of fund arrangements,
the potential cost of duplicate accounts was identified by the Final Report
to the Financial System Inquiry and referred to in its discussion on choice
of fund, stating that the reduction of fees and insurance of multiple
accounts could increase superannuation balances at retirement by around
$25,000 and retirement incomes by up to $1,600 per year.
Other costs of the status quo
2.43 There are a number of other costs that the current choice of fund
arrangements can impose. In particular, employees and superannuation
funds face administrative costs generated by the regular rollover of
monies.
2.44 Employees forced to receive SG payments in a non-preferred
fund may elect to regularly rollover monies from this fund to their
preferred fund to ensure their gains are maximised, although funds are not
obliged to action rollovers more than once per year. Alternatively, they
may seek to rollover their monies and close their account upon entering or
leaving a workplace where choice is not offered. In both scenarios
employees and funds will both incur costs from requesting that monies be
rolled over and the performance of the process.
2.45 Other administrative costs will arise for those individuals who
are engaged with their superannuation from the multiplication of funds,
such as the monitoring of balances, fees and returns across multiple
accounts, as well as increased member communications and funds
management costs for funds themselves. In addition, employees face the
risk of losing track of accounts and thus losing savings they have accrued
for their retirement.
Regulatory Burden Estimate (RBE) Table - Option 1
Average annual regulatory costs (from business as usual)
Change in Businesses and Individuals Total change in cost
costs Funds
($ million)
Total, by - - -
sector
21
Superannuation Legislation Amendment (Choice of Fund) Bill 2016
Option 2: Mandate that no restrictions on choice of fund remain for any
new enterprise agreements made after 1 July 2016 - existing employees
who want choice must request a choice form
2.46 Under this option, certain employers who are currently not
required to give their employees a choice of superannuation fund would
be required to do so upon commencement of a new enterprise agreement
that is made after 1 July 2016. Ongoing employees would be able to
request a choice of fund form, while from this point the employer would
also have to offer choice to their new employees on an ongoing basis
(contributions would still be made to default funds in cases where choice
was not exercised by an employee).
2.47 The costs of this option would be incurred by employees,
employers and superannuation funds. There would be some initial
compliance costs as enterprise agreements transition to being required to
provide choice, and some ongoing costs as both new and existing
employees exercise their right to choose a fund.
Costs to employers
2.48 Where a new enterprise agreement is made on or after 1 July
2016, an employer would need to provide a choice of fund form to any
ongoing employee who requests one. Employers would also need to
update information in their payroll systems to make SG payments to these
new funds where employees completed the form and chose a different
fund. There would also be ongoing costs associated with offering choice
to new employees after these changes are implemented.
2.49 However, with the introduction of SuperStream, the cost to
employers associated with sending employee data to multiple funds has
been significantly reduced.
2.50 Under SuperStream, employers are required to send
contributions electronically and using standard data and format to any
fund. Default funds are required to offer employers an option to facilitate
the 'pass- through' of contributions data, that is a single point of entry that
enables employers to send all their contributions data to a single
destination from where it will be delivered to any identified fund. The
presence of choice may involve a realignment of transaction processing
costs on employers but it is expected these will be insignificant.
2.51 In relation to the cost of sending contributions to multiple
superannuation funds, from 1 July 2016 the payment of superannuation
must be made electronically by all businesses. To facilitate the payment of
contributions by employers, there are a number of free or very low cost
clearing house services available to employers of all sizes which facilitate
22
Regulation impacts statement
making payments to multiple superannuation funds, including the Small
Business Superannuation Clearing House administrated by the Australian
Taxation Office (ATO). In addition to these, there are a number of
low-cost in-house software solutions on the market which also provide
this service. It is difficult to estimate the difference in costs across
business size, but contribution and data sending costs are expected to be
similar for the reasons above. However, generally the larger a business
gets the more sophisticated its back office administration systems and
processes are, which assist in meeting these obligations.
2.52 Department of Employment figures indicate that approximately
763,000 individuals are employed under enterprise agreements that
restrict choice. This figure does not include people on expired enterprise
agreements waiting to be renegotiated. As it is based on employees
covered at agreement approval time, it does not allow for subsequent net
employee level changes for each enterprise agreement. The figure does
not exclude existing defined benefit members, who already have separate
exemptions from choice of fund. ATO records indicate that 7.58 per cent
of employees contribute to defined benefit funds rather than accumulation
funds, so we expect the influence of this effect to be fairly small. In order
not to underestimate factors that would suggest higher rates of choice
restriction (which could lead to understated compliance costs), we have
assumed 800,000 individuals are employed under enterprise agreements
that restrict choice.
2.53 The number of employees who will exercise choice under this
option is expected to be low. The Department of Employment
conservatively estimates that approximately 10 per cent of employees that
become eligible for choice under this proposal will choose a different fund
as a result of these changes. This is based on the Cooper Review finding
in 2010 that 70 per cent of Australians holding a superannuation account
were members of the default fund selected by their employer
(Treasury, 2012, Review into the Governance, Efficiency, Structure and
Operation of Australia's Superannuation System 2010, final report
prepared by J Cooper). As this is a conservative estimate, for the purpose
of this Regulation Impact Statement (RIS) the assumption used in costing
is that 15 per cent of employees who receive choice of fund as a result of
this measure will exercise it.6 This figure also represents a middle-ground
6
It could be expected from a behavioural point of view that the rate of choice would differ
between Options 2 and 3 because under Option 3 all employees are being given a form and
essentially prompted to consider choice. This suggests a lower choice rate for Option 2
should be used, but because any difference in choice rates would be difficult to justify and
compliance costs should not be understated, the same rate is used for both options.
23
Superannuation Legislation Amendment (Choice of Fund) Bill 2016
between the higher estimates of choice and lower estimates based on
related behaviour.7
2.54 It is therefore expected that an estimated 120,000 individual
employees would request and complete a choice of fund form once choice
had become available to them under a new agreement. Approximately ten
minutes of administrative work would be required to provide a choice
form to each employee, and a further five minutes to input data for those
employees that exercise choice, with standard labour costs assumed. The
start-up compliance costs for employers are therefore anticipated to be:
• $1,319,000 in providing a standard choice form to employees
who ask for one upon commencement of the new agreement.
• $628,000 in processing their choice of fund forms.
2.55 Assuming an average annual employee turnover of 13 per cent,
it is expected that employers would need to provide a standard choice
form for 104,000 new employees each year once all agreements had been
updated. Of these new employees, it is estimated that only 15,600 would
exercise choice, requiring further administrative time as above. The
ongoing compliance costs for employers are therefore anticipated to be:
• $1,089,000 in providing a standard choice form for new
employees.
• $84,000 in processing the choice of fund form of those who
exercise choice.
2.56 Businesses will begin to incur the ongoing compliance cost of
this change in different years, depending on the timing of their enterprise
agreement's expiry and renegotiation. However, all agreements must
include a nominal expiry date within four years of the date of FWC
approval.
2.57 While agreements may not be renegotiated immediately
following expiry, and restrictions on choice remain in place until a new
agreement comes into effect, this effect is impossible to forecast. In
addition, in some cases employers may operate with multiple enterprise
agreements or awards, further staggering the impact of this change. These
businesses might be required to operate with two sets of choice rules
7
Roy Morgan research states that 3.2 per cent of superannuation products are 'switched'
annually (finding no. 6617, 6 January 2016). See also a summary of estimates in the Default
Superannuation Funds in Modern Awards, Productivity Commission Inquiry Report, No 60
5 October 2012, page 36.
24
Regulation impacts statement
simultaneously. However, those employers who want to offer choice
despite one of their enterprise agreements still restricting choice can do so
under superannuation law.8
Costs to employees
2.58 Employees who exercise choice under Option 2 may incur
one-off additional search costs associated with choosing a fund and
compliance costs associated with establishing an account.
2.59 However, as most employees do not engage with their
superannuation, low levels of initial take up of choice are still expected,
which would minimise compliance costs. Ongoing compliance costs,
generated by new employees or employees who wish to make further
changes to their choice of fund are also anticipated to be low due to the
general lack of engagement with superannuation.
2.60 It is expected that only 15 per cent of employees offered a
standard choice form will choose to exercise choice. This is calculated to
be an estimated 120,000 individuals as businesses offer choice for the first
time. Researching a fund and completing the form is expected to require
three hours, costed using the default value of leisure time. The start-up
compliance costs for employees are therefore anticipated to be:
• $10,440,000 researching a new fund and filling in a choice of
fund form.
2.61 Given expected employee turnover and low levels of take-up of
choice, it is expected that 15,600 new employees would elect to exercise
choice each year. These individuals would also incur the time costs above.
The ongoing compliance costs for employees are anticipated to be:
• $1,357,000 researching a new fund and filling in a choice of
fund form for new employees.
2.62 Consultation submissions argued that benefits to employees
from collective agreement on a particular fund, such as any negotiated
higher superannuation contribution rates, advantageous insurance
arrangements, or lower fees in exchange for using an employer's fund
exclusively could be lost of choice is expanded. It was not explained how
this would occur. These benefits should still be able to be negotiated
taking into account choice of fund given take-up is expected to be low.
This is covered further in the consultation section below.
8
See section 32Z of the Superannuation Guarantee (Administration) Act 1992.
25
Superannuation Legislation Amendment (Choice of Fund) Bill 2016
Costs to superannuation funds
2.63 The compliance cost impact on superannuation funds is also
likely to be small. It is expected there would be a small initial surge of
compliance costs spread across funds due to balances being transferred
and old accounts being closed.
2.64 As above, it is estimated that 120,000 members would depart a
fund specified in an enterprise agreement that currently restricts choice.
Given the improvements in electronic rollover, it is estimated that around
15 minutes of administrative work would be required for each rollover
and closure. The start-up compliance costs for superannuation funds are
therefore anticipated to be:
• $1,960,000 in closing accounts and transferring balances
between chosen funds.
2.65 Some funds that are mandated funds in certain industries that
have large numbers of employees (such the Retail Employee
Superannuation Trust (REST) for the retail sector) would be expected to
have higher compliance costs, and may incur broader costs if large
numbers of members choose to close their accounts. These impacts are
difficult to estimate, however, and may not eventuate if the take-up of
choice is lower than expected.
Summary of compliance costs
2.66 This proposal is estimated to result in $14,348,000 of initial
compliance costs to employers, employees and funds, spread over several
years as different enterprise agreements are renewed. Employers would
incur costs by providing a choice form to employees and processing any
changes. Employees affected by this change would incur compliance costs
of researching a new fund and completing a choice of fund form.
2.67 This proposal is also estimated to have ongoing costs of
$2,530,000 per year. These costs would fall mostly on employers and
employees, and would take effect over several years as enterprise
agreements are renewed. Employers would have to continue to provide a
choice form to new employees and process this. New employees would
have compliance costs from researching a fund and filling in a standard
choice form.
2.68 The average total cost over 10 years from 1 July 2016 is
expected to be $3,965,000.
26
Regulation impacts statement
Associated benefits
2.69 The introduction of choice of fund for all employees would have
significant benefits for employees who exercise choice. As outlined under
Option 1, the restriction of choice can have significant impacts,
particularly in generating fees from multiple funds, as well as
administrative costs. These will vary depending on the individual and
what decisions they decide to make, and so are difficult to estimate.
However, it is clear that those who are disadvantaged by choice can suffer
a significant impact on retirement savings.
2.70 There are also unquantifiable ongoing benefits of a person being
able to make key decisions about their own superannuation savings. The
Financial System Inquiry consulted on extending choice of fund and
concluded in its Final Report that people should be able to choose their
fund, and that the superannuation system should assist members to
achieve their individual goals and make savings decision that best suit
their personal circumstances.
2.71 The Financial System Inquiry also identified the potential for
increased competition and member engagement as important broader
benefits that can arise from increased choice.
Regulatory Burden Estimate (RBE) Table - Option 2
Average annual regulatory costs (from business as usual)
Change in costs Business and Individuals Total change in
($ million) Funds cost
Total, by sector $1.564 $2.401 $3.965
Option 3: Mandate that choice of fund be given to all employees under
existing and new enterprise agreements and workplace determinations
from 1 July 2016, and employers must offer a choice of fund form to all
existing employees
2.72 Option 3 has two aspects that differ from Option 2:
• the Government would need to make arrangements to
override clauses in enterprise agreements that allow
employers to restrict choice; and
27
Superannuation Legislation Amendment (Choice of Fund) Bill 2016
• Employers would have to offer a choice of fund form to all
existing employees.
2.73 Any new enterprise agreements or workplace determinations
made would also have to offer choice, in the same way as Option 2.
2.74 This option would generate compliance costs for employers,
employees, superannuation funds and possibly government, depending on
the mechanisms put in place for implementation and oversight of
compliance.
Costs to employers
2.75 On 1 July 2016, employers with enterprise agreements that
restricted choice would need to immediately provide employees with a
choice of fund form. As with Option 2, the take up of a new choice of
fund is expected to be low. There would also be ongoing costs associated
with offering choice to new employees after these changes are
implemented.
2.76 All affected businesses would need to be prepared to implement
choice from 1 July 2016, with no time beyond this for businesses to
develop and roll out changes to processes. Failure to do so could result in
employers facing an SG penalty. The costs of this compared to option 2
are difficult to estimate.
2.77 From 1 July 2016, all businesses must be able to send
SuperStream compliant data and contributions. The introduction of these
changes will simplify how contributions are made by employers, ensuring
that the contribution data and payment requirements are made
electronically and reducing the cost to employers of implementing choice
of fund.
2.78 Employers would need to provide a choice of fund form to all of
the 800,000 individual employees currently facing restricted choice in
their enterprise agreement, as well as inputting the data from those
individuals (assumed to be 15 per cent) that choose to exercise choice.
These initial costs are therefore calculated to be:
• $8,378,000 in providing a standard choice form to all
existing employees on enterprise agreements from 1 July
2016.
• $628,000 in processing their choice of fund form.
2.79 The ongoing compliance costs for employers are anticipated to
be the same as under Option 2:
28
Regulation impacts statement
• $1,089,000 in providing a standard choice form to new
employees.
• $84,000 in processing their choice of fund form.
2.80 In addition to the added burden of providing a choice form to all
current employees at July 1, 2016, under Option 3 the ongoing costs will
be incurred in full each year from 1 July 2016 as new employees are
hired. The start-up costs will all be incurred in the initial year as well,
rather than spread across several years.
2.81 While it cannot be estimated, there would be a cost associated
with overriding existing agreements. Some employers would be operating
on the basis of their agreement, and could find transitioning to choice
more difficult than others.
Costs to employees
2.82 Employees given the option of choice under this option may
incur one-off additional search costs associated with choosing a fund and
compliance costs associated with establishing an account.
2.83 However, as most employees do not engage with their
superannuation, low levels of initial take up of choice are still expected,
which would minimise compliance costs. Ongoing compliance costs,
generated by new employees or employees who wish to make further
changes to their choice of fund are also anticipated to be low due to the
general lack of engagement with superannuation.
2.84 The start-up compliance costs for employees are anticipated to
be:
• $10,440,000 researching a new fund and filling in a choice of
fund form.
2.85 The ongoing compliance costs for employees are anticipated to
be:
• $1,357,000 researching a new fund and filling in a choice of
fund form for new employees.
2.86 As with the costs to employers, these ongoing costs will be
incurred every year from 1 July 2016, with the full start-up costs also
falling entirely in the first year.
29
Superannuation Legislation Amendment (Choice of Fund) Bill 2016
Costs to superannuation funds
2.87 The compliance cost impact on superannuation funds is also
likely to be small. It is expected there would be a small initial surge of
compliance costs spread across funds due to balances being transferred
and old accounts being closed. Some funds that are nominated funds in
certain industries that have large numbers of employees (such as REST
for the retail sector) would be expected to have higher compliance costs.
2.88 The start-up compliance costs for superannuation funds are
anticipated to be:
• $1,960,000 in closing accounts and transferring balances
between chosen funds.
Summary of compliance costs
2.89 This proposal is estimated to result in $21,406,000 of initial
compliance costs to employers, employees and funds in the first year of
operation. Employers would incur costs by providing a choice form to
employees and processing any changes. Employees affected by this
change would incur compliance costs of researching a new fund and
completing a choice of fund form.
2.90 This proposal is also estimated to have $2,530,000 per year in
ongoing costs. These costs would fall mostly on employers and
employees. Employers would have to continue to provide a choice form to
new employees and process this. New employees would have compliance
costs from researching a fund and filling in a standard choice form.
2.91 There would be additional unquantifiable costs compared to
Option 2 of overriding existing agreements.
2.92 The full compliance cost in the initial year is significantly higher
than under Option 2.
2.93 The average total cost over 10 years from 1 July 2016 is also
expected to be higher under Option 3, at $4,671,000.
Associated benefits
2.94 The introduction of choice of fund for all employees would have
significant cost reductions for employees. As outlined under Option 1, the
restriction of choice can have significant impacts, particularly in
generating fees from multiple funds, as well as administrative costs. These
will vary depending on the individual and what decisions they decide to
make.
30
Regulation impacts statement
2.95 Removing restrictions on choice would likely remove some of
these costs as employees choose to stay with a single fund through
different employment arrangements, paying only a single set of fees and
reducing the administrative costs of rolling over money and monitoring
different superannuation accounts.
2.96 As in Option 2, there are also unquantifiable ongoing benefits of
a person being able to make key decisions about their own superannuation
savings.
Regulatory Burden Estimate (RBE) Table - Option 3
Average annual regulatory costs (from business as usual)
Change in costs Business and Individuals Total change
($ million) Funds in cost
Total, by sector $2.270 $2.401 $4.671
Consultation
2.97 The Financial System Inquiry consulted broadly with the public
on a recommendation to fully remove restrictions on the general policy of
restricting an individual's choice of superannuation fund. The Final
Report to the Financial System Inquiry concluded employees should have
choice of fund, and stated that some submissions highlighted the benefits
of choice in providing flexibility for members and lowering fees through
greater competition (Recommendation 12). In addition, the Trade Union
Royal Commission consulted on extending choice of fund and found in its
Final Report that the benefits of choice outweigh arguments against
continued restrictions.
2.98 Taking into account the Financial System Inquiry's
recommendation, the Government's response was to propose extending
choice to employees on enterprise agreements and workplace
determinations made after 1 July 2016. The Government consulted on
draft legislation and explanatory memorandum to give effect to this
proposal. The draft legislation proposed giving effect to Option 2.
2.99 As a result, consultation on a concrete proposal raised the
impacts and cost of the proposed changes for businesses, individual
employees and superannuation funds.
2.100 Given that there are diverse stakeholders potentially affected by
these changes, Treasury consulted over 6 weeks. The exposure draft
31
Superannuation Legislation Amendment (Choice of Fund) Bill 2016
legislation and explanatory memorandum were made available on the
Treasury website and a large number of stakeholders were alerted to this,
and offered the opportunity to discuss any concerns about the proposal
with the Treasury.
2.101 Key stakeholders covered the following issues in their written
submissions.
The benefits of choice
2.102 Submissions supporting the proposal argue that there are
benefits from expanding choice, including:
• individual choice and flexibility over retirement savings;
• reducing multiple accounts and associated fees and insurance
premiums;
• increased competition among superannuation funds for
members; and,
• increased member engagement.
2.103 Submissions that do not support the proposal make opposing
arguments that:
• individuals may not be better off with choice: it is claimed
that default funds, which are often mandated in enterprise
agreements that restrict choice and are generally not-for-
profit, deliver better returns, more appropriate insurance, and
play a role in employer compliance;
- alternatively, it is claimed that there is no need to
expand choice because most people do not exercise it.
• choice does not, or has not been proved to, contribute to
member engagement, either because the two are not linked or
too much choice is detrimental to engagement;
• choice will not deliver lower fees through competition; and
• any benefits to employees from collective agreement on a
particular fund, such as negotiating higher superannuation
contributions, advantageous insurance arrangements, or
lower fees in exchange for using an employer's fund may be
lost. One stakeholder recommended protections to ensure
these benefits are not lost in the event choice is expanded.
32
Regulation impacts statement
2.104 Ultimately, choice is an individual matter, and individuals who
wish to do so can consider their own circumstances and make decisions in
their best interests.
2.105 The proposal does not assume that individuals with restricted
choice are in sub-optimal superannuation arrangements. Nor does it
assume that choice is restricted to a type of fund, be it an industry fund or
a retail fund, and moving to a different type of fund will be advantageous
for all employees.
2.106 The proposal gives individuals the ability to choose a different
fund from a fund currently mandated in an agreement, the currently
mandated fund (if it becomes the default fund or not), or to not make a
choice at all. Individuals who, based on their circumstances, would be
better off choosing another fund can do so. They can choose the mandated
fund, an industry fund, a retail fund or a self-managed superannuation
fund.
2.107 On this basis, it is expected that those who do choose a fund
would do so for a benefit to themselves.
2.108 Along similar lines, if members are disengaged or if having
choice would not present some employees with better outcomes, choice
would not need to be restricted by employers at the moment to retain them
in the mandated fund.
2.109 In terms of employee benefits, there are not strong reasons to
support the status quo.
2.110 The basis for the suggestion that extending choice of itself could
result in lesser benefits for all employees was not covered in detail in
some submissions, but it is understood this could occur either because
generous benefits are negotiated in exchange for full employee
membership in the fund, or because of a relationship between employer
representatives and the fund.
2.111 However, it was not demonstrated that expanding choice would
put these benefits at risk. And it is inconsistent with assertions from
stakeholders and evidence that take-up of choice will be low: enterprise
bargaining could take place on the basis that majority employee
membership with the default fund would continue and benefits above the
community standard could still be obtained.
Compliance costs of contributing to multiple funds
2.112 Some submissions supporting the status quo pointed to possible
savings in compliance costs for employers that come from contributing to
33
Superannuation Legislation Amendment (Choice of Fund) Bill 2016
a single fund. Compliance costs were a significant issue when choice of
fund was introduced in 2005.
2.113 Others submissions pointed out that SuperStream and the
proliferation of low cost clearing houses have significantly reduced these
costs. Details on this are included above. In addition, the majority of
employees in Australia have choice and many employers of all sizes
already contribute to multiple funds using these technologies.
Choice for defined benefit members
2.114 Concerns were raised about extending choice to:
• existing members of defined benefit schemes; and
• employees who become eligible to join a defined benefit
scheme.
2.115 Submissions argued that extending choice to employees who are
members of a defined benefit fund could have adverse consequences for
the fund and the employer.
2.116 Existing exemptions from providing choice for certain members
of defined benefit funds will continue to apply. These exemptions reflect
that the employee is already entitled to defined retirement benefits as a
result of their employment and their employers should not have to pay
additional superannuation to another fund.
2.117 Some submissions argued employees who become entitled to
join a defined benefit fund, not being an existing member, should not get
choice for similar reasons. However, employers have not already funded
(or are not liable to fund) benefits in these cases. And any effect of choice
on the future membership of the fund would be expected to be
manageable in view of expected relatively low take-up of choice in these
circumstances. Some defined benefit funds, such as Unisuper, already
offer choice of an accumulation plan as an alternative to compulsory
defined benefit membership.
2.118 In view of that and the potential benefits of choice, employees
who are not existing members of a defined benefit fund should have
choice of fund.
Existing employees and the obligation to provide a choice of fund form
2.119 Public consultation and related discussions with stakeholders
confirmed, among other things, that there is a preference among those in
industry who support extending choice for employers not to be required to
34
Regulation impacts statement
offer a choice of fund form to all employees after a new enterprise
agreement is made from 1 July 2016. Given that the take-up of choice is
expected to be relatively low, it is reasonable for employees who want
choice to simply ask their employer for a choice of fund form.
Other issues
2.120 In relation to specific implementation options and compliance
costs, several stakeholders raised a variant of Options 1 and 3. In addition
to mandating choice in new enterprise agreements made after 1 July 2016,
some submissions proposed that enterprise agreements made before
1 July 2016 that restrict choice be overridden after a certain date (several
years after 1 July 2016) to provide choice.
2.121 The submissions argued this would save compliance costs for
large employers with multiple agreements. Employers in this situation
could have parts of their workforce gaining choice as enterprise
agreements are renegotiated, while other parts still have restricted choice.
Another submission added that employees on recently made enterprise
agreements could have several years before the next renegotiation.
2.122 The Government believes that overriding multiple agreements of
an employer so that they can provide choice of fund is unnecessary. A
provision of the Superannuation Guarantee (Administration) Act 1992
makes clauses in enterprise agreements unenforceable where the employer
gives the employee choice of fund: see section 32Z. This provides a
voluntary option for employers with multiple agreements to treat their
workforce uniformly, and has been clarified in the explanatory
memorandum to the Bill.
2.123 Overriding all agreements after a certain date would create
difficulties for employers because it would interfere with enterprise
bargains already struck. As described in option 3, these costs are difficult
to estimate but are clearly undesirable.
2.124 Submissions also made other minor and technical points of less
relevance to consideration of broad policy options.
2.125 Treasury will publish a consultation summary on its website.
Best option
2.126 Two major independent reviews conducted in recent years, each
of which undertook public consultation on the benefits of choice of fund,
have recommended that Government expand choice of fund. The benefits
35
Superannuation Legislation Amendment (Choice of Fund) Bill 2016
of increased member engagement and competition, the ability to avoid
duplicate fees and insurance premiums, and the importance of individual
choice in savings decisions that impact retirement income are significant
and rule out Option 1.
2.127 Option 2 is preferable to Option 3 because it has lower
compliance costs, but still gives choice of fund to those who want it.
2.128 Given the low expected take-up of choice, reducing the burden
on employers of providing choice of fund forms to employees who aren't
expected to exercise choice is justified. Mandating choice for all new
agreements instead of overriding existing ones is also preferable because
it respects bargains already struck between employers and employees, and
allows time to consider implementation before new enterprise agreements
are negotiated.
RIS Status
2.129 Treasury prepared a short-form RIS and agreed regulatory costs
and offsets with the Office of Best Practice Regulation for the initial
decision.
2.130 Treasury prepared a standard form RIS for final assessment, and
agreed regulatory costs with the Office of Best Practice Regulation for the
final decision.
2.131 The Department of Employment and the ATO were consulted in
the development of the measure and this RIS.
Implementation and evaluation
2.132 Option 2 can be achieved through amendments to the
Superannuation Guarantee (Administration) Act 1992.
2.133 As described in the costs of Options 2 and 3 above, the offering
of choice of fund is one aspect of other established superannuation
obligations. The SuperStream reforms and availability of contribution
clearing houses provide ready means for employers and superannuation
funds to implement these reforms. The majority of employers under
enterprise agreements already offer choice, demonstrating that these
changes can be readily made. The ATO also provides information to
employers and funds on compliance with superannuation obligations.
2.134 The superannuation industry has a range of established methods
for raising any issues with the policy and implementation of this measure
36
Regulation impacts statement
with Government, including the Superannuation Industry Advisory Group
and the Superannuation Industry Relationship Network; the ATO and the
Treasury are represented at both.
37
Chapter 3
Statement of Compatibility with Human
Rights
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
3.1 The Superannuation Legislation Amendment (Choice of Fund)
Bill 2016 (Bill) is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3
of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
3.1 This Bill amends the Superannuation Guarantee
(Administration) Act 1992 to ensure employees covered by new
workplace determinations or enterprise agreements that are made from
1 July 2016 have an opportunity to separately choose their superannuation
fund.
3.2 Minor technical amendments are also made to clarify an
exemption for employers from an increased individual superannuation
guarantee shortfall where the employer has not given an employee a
standard choice form in accordance with the choice of fund requirements
and the employee is a member of a defined benefit superannuation
scheme.
Human rights implications
3.3 This Bill does not engage any of the applicable rights or
freedoms.
Conclusion
3.4 This Bill is compatible with human rights as it does not raise any
human rights issues.
39
Index
Schedule 1: Extending superannuation choice to workplace
determinations and enterprise agreements
Bill reference Paragraph number
Items 1 to 4, paragraph 19(2B)(c), subsection 20(1), subsection 1.31
20(3A) and section 20
Items 5 and 6, paragraphs 32C(6)(g) and (h) 1.17
Item 7, subsection 32C(6AA) 1.20
41