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Choosing a default fund for your employees can be confusing – especially when there’s so many super funds out there vying for your vote.
But a key point to remember when selecting a super fund is that the default fund you pick must be registered to offer a MySuper product.
So, what exactly is a MySuper product and how do they work?
Where to pay your employees’ SG contributions
When you have new employees that can’t or don’t want to select their own super fund into which you can pay their Superannuation Guarantee (SG) contributions, you are responsible for selecting a suitable super fund for them.
This becomes your business’s so-called default fund, but there are a couple of things you need to remember if you don’t want to run into trouble with the ATO.
The first thing is the super fund you nominate 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.
Your nominated default fund also needs to be registered to offer a MySuper product with the Australian Prudential Regulation Authority (APRA) and have received a MySuper authority.
MySuper products are designed to be workplace funds and are only available through employers. They are also the only type of super funds authorised to accept default SG contributions from employers.
As well as selecting a complying super fund that is registered to offer a MySuper product, you should 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 product offered by large super funds and they provide a simple set of product features. 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.
This type of super product is offered by most large super funds across Australia. According to the Australian Securities & Investments Commission (ASIC), in December 2019 there were around 15 million MySuper member accounts.
Although MySuper products 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 are designed to act as a default account for employees when they start a new job and don’t choose their own super fund.
Employers’ SG contributions are directed into the super fund’s MySuper product as they are designed to have:
|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 has 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.
|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 and offer 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 fund members a basic level of cover for life and total and permanent disability (TPD) insurance.|
|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.|