In this guide
Choosing a default fund for your employees can be confusing – especially when there are so many super funds out there vying for your vote.
A key point to remember when making your selection is your default fund must be registered to offer a MySuper product.
It shouldn’t be hard to find one that does. According to June 2022 statistics from the Australian Prudential Regulation Authority (APRA), $884.5 billion out of the total $3.3 trillion in assets held by Aussie super funds is held in MySuper products.
So, what are the rules when it comes to selecting a default fund for your SG contributions?
Where to pay your employees’ SG contributions
These days, most employees are eligible to choose their super fund and their employer must pay Superannuation Guarantee (SG) contributions on their behalf into that fund. They can choose a super account they already have, an entirely new fund, or the default fund you have selected for your business.
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If a new employee fails to choose a super fund (or is ineligible to choose), you will need to check with the ATO to see if they have a stapled super fund that follows them whenever they change jobs. You must then use this stapled fund for your employee’s super contributions.
If your new employee doesn’t choose their own fund and the ATO advises you they don’t have a stapled fund, you will need to make contributions for them into your business’ default super fund.
Your default fund must be a complying super fund or a retirement savings account (RSA). A complying super fund is one that meets specific requirements and obligations under super law. Complying super funds must also be registered with APRA and offer a MySuper product to their members.
MySuper products are generally designed to be workplace funds and are the only type of super fund authorised to accept default SG contributions from employers.
Self-managed super funds (SMSFs) cannot operate as your company’s default super fund as they don’t meet the requirement of being a MySuper product.
As well as selecting a complying super fund registered to offer a MySuper product, check the relevant industrial awards covering your employees. Some awards and enterprise agreements require employers to make SG contributions for their employees into a specific super fund.
What is a MySuper product?
MySuper funds are a basic super account offered by large super funds providing a simple set of product features without unnecessary fees and options. This is designed to make comparison of MySuper funds easy, as users only need to compare a few basic differences.
MySuper products give super fund members access to a low-cost, low-risk Balanced investment option with a standardised reporting system. Alternatively, some MySuper products use a lifecycle approach to investing.
MySuper products are offered by most of the large super funds across Australia. Although MySuper accounts are fairly straightforward products, different super funds have implemented the rules set by APRA in slightly different ways, so it’s worth checking the differences before you make a selection.
How does MySuper work?
MySuper funds were designed to act as a simple, low-cost super product to hold employer SG contributions when a new employee started and failed to make an active decision to choose their own super fund.
The basic features of MySuper products are:
Simple investments
Depending on the super fund, MySuper products are generally either a single diversified investment strategy or a lifecycle investment option. The majority of MySuper funds have a simple balanced investment allocation with around 70% in growth assets like shares and property and 30% in more defensive assets like cash and fixed interest.
Some MySuper funds use a lifecycle or lifestage investment strategy, which automatically shifts the allocation of investment assets as the fund member ages. This means younger members have a higher allocation to growth assets, while fund members approaching retirement have a higher allocation to defensive assets.
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Simple reporting
MySuper products are simply explained and provide easy-to-read graphs on a product dashboard. MySuper dashboards must explain the fund’s target return, actual return and level of investment risk. The product dashboard is readily available to fund members online and in their annual super fund statement.
Low cost
MySuper options are designed to be fairly basic products offering few features and options. This means they are generally cheaper than a normal super fund, which can cost up to 2% annually. Some MySuper products charge fees as low as 0.6%.
Easy to compare
The product dashboard for a MySuper option must follow a standardised format set out by ASIC enabling fund members to easily compare products and their performance.
Prescribed fees
MySuper funds have a set list of allowable fee types that must be fully disclosed. Fees are limited to those for administration, investments, buy/sell spreads, exit and services such as switching or contribution splits. Fees must be reported as a single dollar figure for a member with a $50,000 balance to allow easy comparison between different MySuper products.
Basic insurance
MySuper funds are required to offer most fund members a basic level of cover for life and total and permanent disability (TPD) insurance. Insurance is now opt-in for members aged under 25 or with an account balance below $6,000.
Restrictions on advice
MySuper funds have limits on how financial advice is provided and paid for by fund members.
Limited membership
Only fund members in the accumulation or pre-retirement phase are eligible to join MySuper products.
How to compare MySuper funds
The ATO also has a handy online tool employers can use to compare MySuper products currently on offer.
The YourSuper Comparison Tool helps you to compare MySuper products and to choose the super fund best meeting your employees’ needs. Launched in July 2021, the YourSuper Comparison Tool is regularly updated with annual investment performance data from APRA.
The online tool displays a table of MySuper products ranked by fees and net returns (updated quarterly), allows you to compare details on up to four MySuper products simultaneously and provides a link to the super fund’s website.
APRA’s assessment of the investment performance of each MySuper product is included. It lists whether the fund has met or exceeded the investment performance test benchmark, not met the benchmark, or has not been assessed as the product has less than five years of performance history.
When selecting a MySuper product for your employees, some of the factors to consider include investment performance, fees, insurance and the investment options and services the product provides.
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