Australia: Superannuation Default Fund Review Process

Superannuation Default Fund Review Process

The Fair Work Commission (Commission) review of default superannuation fund terms in modern awards is underway. The review process was enacted by the previous Federal government.

Activity in this space accelerated in December in preparation for what will be a huge year for the Super industry in 2014.

What Is at Stake?

The ultimate outcome of the review process will be to reduce employers' choice of default fund (relevant if your employees make no individual or collective choice) to only the funds named in the modern award – with no 'grandfathering' of existing contribution arrangements. From the perspective of an employee who has not exercised choice, if the employer is forced to change the default fund, the existing fund balance must be crystallised and transferred to the new default fund – which may or may not advantage the employee.

What Has Been Decided So Far?

The Commission has reviewed the list of authorised MySuper products published by APRA, and all superannuation funds that do not offer a MySuper product have been deleted from modern awards.

'MySuper' is the term given to simple and cost-effective superannuation products. They have a simple set of product features, irrespective of the provider, and enable members, employers and market analysts to compare funds more easily based on a few key differences. MySuper products were introduced based on Government policy that members should not pay for any unnecessary 'bells and whistles' they do not need or use. (Explanatory Memorandum, Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2012)

The ability to "grandfather" existing contribution arrangements will continue until 31 December 2014.

The Commission has amended the grandfathering paragraph within the standard superannuation clause in modern awards regarding:

  • funds that offer MySuper products;
  • public sector superannuation schemes; and
  • defined benefit fund membership.

What Will Be Asserted in 2014?

Industry Super Australia (ISA):

  • asserts that past grandfathering provisions inserted in 2008 condoned non-compliant activity and resulted in a significant growth in the use of superannuation products not named in awards;
  • suggests that grandfathering caused the net return to member accounts of funds not named in awards to be on average 1.7% less per annum, when compared to the superannuation funds named in modern awards;
  • proffered survey research that if it was clear that one fund provided a financial benefit to the employer company (not employees), the employer would be more inclined to consider changing their default superannuation fund;
  • will submit that "transitional authorisations" should not be used to continue or extend grandfathering.


  • supports ISA's position;
  • considers that grandfathering (that is, permitting continuing contributions to funds with at least one employee member to which employers were making contributions prior to the cut-off dates for grandfathering 12 September 2008 and 27 November 2013) operated as a 'back-door route' to retain their default status without having to meet the new legislative requirements;
  • believes that the modern awards objective (which requires the Commission to consider "the likely impact of any exercise of modern award powers on business, including on productivity, employment costs and the regulatory burden"):
    • does not "sit well with" other objectives, and
    • involves a potential bias for "commercial funds" versus funds described by unions as being "run only to benefit members."

What's Next?

In the next stages of the process, commencing 1 January 2014:

  • the Commission will invite superannuation funds that offer a MySuper product (or employers to which an employer MySuper product relates) to apply to the Commission to have the product included in a Default Superannuation List (List) and Schedule of Approved Employer MySuper Products (Schedule);
  • the Government's Expert Panel will make the List/Schedule; and
  • a Commission Full Bench will review the default fund term in each of the awards, in order to select from the funds in the List and Schedule funds to be specified in each modern award.

The determination varying the default fund modern award terms following this next stage will take effect from 1 January 2015 at the earliest.

What does this mean for Employers now and in 2014?

2014 will mark a year of shake up in the Super industry, to become effective in early 2015.

1. MySuper Products and Contributions
No change during 2014 from the present scheme, presuming your default fund offers a MySuper product. You can contact us to ensure that your present default fund was not affected by the FWC's determinations.

2. MySuper Products and Enterprise Agreements
The changes in respect of MySuper products impact enterprise agreements approved by the Commission on or after 1 January 2014. Superannuation terms in agreements approved before that date remain valid.

For agreements approved from 1 January 2014, employees may collectively select with their employer particular funds that offer a My Super product (or are a defined benefit scheme or an exempt public sector superannuation scheme) which may be named in Enterprise Agreements.

If you wish to avoid restrictions on default funds and wish to select with employees a particular fund, you can cover off on choice by entering into an Enterprise Agreement. The Agreement must meet the Better off Overall Test relevant to all aspects of the modern award.

3. Support your default fund
Employers will have two opportunities to support their existing default fund as part of the FWC two stage review process. You should contact your default fund as soon as possible to discuss the preferred way of providing that support.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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