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 dont make a choice?
If you dont 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.
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.
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 funds 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. Weve 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.
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?
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?
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.
This article is brought to you by Imperator Financial and Adrian Raftery Wawrzyniak
Disclaimer:The advice contained herein is general securities advice only. It has not been prepared taking into account your particular investment objectives, financial situation and needs. You should assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. You should do this before making an investment decision based on the general securities advice. You can either make the assessment yourself or seek the help of a professional adviser.
Standard Choice (of Superannuation) Form $0
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