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Self Managed Super Fund (SMSF) Article
Employee Super Choice
By Tony Negline.
This article may be out of date.
30th June 2004
After eight long years wait, super choice is here at last.
From 1st July 2005 you will be able to tell your employer that your super contributions must be made to your Self Managed Super Fund.
However as always there are rules to follow and Choice of Fund (CoF) does not apply to large sections of the workforce.
Employees who want their employer super contribution in their SMSF should check that their employer is prepared to make contributions to it before making the request.
An employer can ignore your request if you are employed under a State Award, Australian Workplace Agreement or other industrial agreement. Members of some defined benefit funds might also find themselves unable to move their contributions to another fund.
An employer does not need to act on a CoF request for up to two months after an employee made it.
Most employers will probably agree to contribute all super contributions to wherever an employee directs but there is no obligation to do this because CoF only has to be provided for Superannuation Guarantee (SG) contributions (that is, 9% of Ordinary Time Earnings for most employees).
Employers need to be careful before automatically accepting any fund an employee requests. They can easily loose their employer super tax deductions if they have no documented proof that they checked that a super fund complies with all relevant legal requirements. Similarly employers might fail their SG requirements if they cannot prove this fund compliance issue has been checked.
Before contributing to any super fund, employers should check the terms of the trust deed to see what obligations the deed places on an employer. Employers should also check how the fund is administered by the trustees and obtain written information from the trustees that declares that any SG contributions will be automatically credited to the relevant members account and will form part of the member’s “minimum benefits” and will be preserved until an approved Condition of Release is satisfied.
Before accepting employer contributions, SMSF trustees need to check their trust deeds. Many older style deeds demand that an employer has to provide written certification that they will be bound by the rules of the fund. Some deeds demand that it cannot be altered without the prior authority of each employer who contributes to the fund. This is a common trap which trustees should seek to avoid especially where there is a high probability the members could leave an employer.
From 1st July 2004, super fund members can request that their super fund balances be transferred to another fund. This means that employees can leave their employer’s selected fund completely. However be careful as some qualification rules also apply to this provision.
If you want all your future employers to make super contributions to your SMSF then you will want to confirm this with every prospective employer before accepting any position. Equally employers wanting to attract quality employees might begin to advertise that they allow for full choice of fund.
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