Choice of Fund - Checklist for Employees
From 1 July 2005, 'Choice of Fund' will enable many Australian
employees to choose the super fund to which their employer
will be required to make Superannuation Guarantee contributions.
While the new 'Choice of Fund' rules will give employees
a greater say in where and how their super is managed, there
are some pitfalls to be aware of.
This article explores the issues that you should discuss
with your financial planning specialists before you make any
changes to your existing super arrangements.
Is everyone affected by the Choice of Fund rules?
No, many public servants will not be affected, nor will workers
covered by an Enterprise or Workplace Agreement or certain
industrial awards which specify super arrangements.
What are the main benefits?
Think flexibility and control. A choice of where your compulsory
super is paid will allow you to:
- Select a fund that meets your needs for investment choice
- Use one fund for all your super arrangements. This can
be particularly beneficial if you currently have one fund
that your employer uses and one fund that you use for additional
contributions.
- Maintain your super arrangements if you change jobs often.
What if you don’t make a choice?
If you don’t make a choice, your employer will pay your
Superannuation Guarantee contributions into a default fund
that they have selected. This is most likely to be the current
fund.
What should you be aware of?
There are two important issues that you should consider before
you change your current superannuation arrangements.
Insurance
Generally, most superannuation funds provide insurance benefits
to employer groups at a lower cost than an individual might
receive. This is because they are insuring the group as a
whole, taking on both good and bad insurance risks.
An individual seeking to be insured would usually have to
be assessed, providing details of current and previous medical
conditions before being accepted.
Under the new Choice of Fund rules, funds accepting Superannuation
Guarantee contributions must provide a minimum level of cover.
However, there are no details as to what this cover needs
to be, or to the premiums that can be charged. This means
that if you change funds you could find yourself in a situation
where your insurance benefits are less than they were before,
significantly more expensive or you may not be able to obtain
insurance.
Fees
Like insurance, some funds offer lower fees for employer
groups because of the sheer volume of contributions they pay
into the fund. An individual with a smaller balance might
attract higher ongoing fees. It is also important to ascertain
if there are any entry fees in the new fund, or more importantly,
if you will be charged exit fees for leaving your current
fund.
Do you really need to change?
In selecting a suitable superannuation fund for their employees,
most employers take care to assess the fund’s benefits
including the investment options available, insurance cover
and other costs and fees associated with the fund.
So before you rush off to a new fund, take a close look at
what you already have. We’ve provided a checklist with
some of the things you could talk to your financial planner
about before making the switch. You might find that the fund
your employer currently uses is fine and there is no need
to change. Alternatively, if you decide to change, make sure
you take advantage of all the opportunities that this presents.
Checklist for Choice:
Use this checklist to compare your existing fund with others
in the market.
Investment options
What investment options are available?
Do you have full flexibility in the choice of options?
Fees and charges
What are the entry fees for the new fund?
Are there any exit fees for leaving your existing fund?
What are the on-going fees?
Insurance benefits
What are your existing insurance benefits (Death, Total and
Permanent Disablement. Temporary Disablement or Salary Continuance)?
What insurance benefits will you be offered and will you require
assessment before insurance is offered?
What are the current insurance premium rates?
Can you increase your insurance cover?
Other Benefits
Can you view your super account, or make simple changes (like
switching between investment funds) online and will you be
charged a fee?
How often will you receive a printed statement?
Is there a toll-free number you can call for any questions
you might have?
For more information we recommend you speak with a financial
adviser.
Disclaimer:
No investment advice provided to you.
This web site is not designed for the purpose of providing
personal financial or investment advice. Information provided
does not take into account your particular investment objectives,
financial situation or investment needs.
You should assess whether the information on this web site
is appropriate to your particular investment objectives, financial
situation and investment needs. You should do this before
making an investment decision on the basis of the information
on this web site. You can either make this assessment yourself
or seek the assistance of any adviser.
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