On 17 February, the Treasury Laws Amendment (Your Future, Your Super) Bill 2021 (Bill) was introduced into Parliament. As expected, it is currently subject to review by the Senate Economics Legislation Committee, with a report due in late April.
Assuming it is passed, the Bill will impact the obligations of both private and public sector employers under the Choice of (Super) Fund rules. On or after 1 July 2021, in the absence of a new employee choosing a superannuation fund, an employer must determine whether that new employee has a "stapled fund" and, if a stapled fund exists, pay contributions into that stapled fund instead of paying contributions into the employer's chosen default superannuation fund.
A stapled fund will likely be either the last superannuation fund that contributions were made on the employee's behalf or (if there are multiple funds) the fund with the largest account balance. The ATO will notify the employer of the relevant stapled fund.
Context to the changes
Currently, if a new employee does not choose a fund, an employer complies with the Choice of Fund rules by making contributions on behalf of that employee into the employer's chosen default fund.
However, a consequence of these rules is that many employees who fail to choose a fund end up holding multiple superannuation account balances, each subject to multiple fixed fee arrangements, leading to the erosion of their aggregated superannuation balance.
The 'stapling' of funds to employees is designed to minimise this impact by reducing the number of new superannuation fund accounts being created.
The impact for employers
While the rules are designed to benefit super fund members, they will impact employers' compliance requirements in the following ways:
- the rules will apply to all new employees from 1 July 2021 irrespective of whether a default superannuation fund is specified under a workplace determination or an enterprise agreement
- if a new employee fails to choose a fund:
- employers (or their agents) will be required to request that the ATO identifies whether a stapled fund for a new employee exists, and the ATO will need to make rules that employers are required to follow in order to comply with these new requirements;
- employers must make super contributions to the new employee's stapled fund as identified by the ATO; or
- if the ATO cannot identify a stapled fund, the employer makes super contributions to the employer's default fund (only once this is confirmed by the ATO).
In short, in the absence of a chosen fund, an employer will not comply with the Choice of Fund laws unless the employer firstly has requested that the ATO identifies whether a new employee has a stapled fund and the employer then contributes to that stapled fund (if one exists). It is important to reiterate that employers are not permitted to independently determine whether an existing fund is a stapled fund for a new employee.
The ATO's involvement
Employers or their agents will need to contact the ATO and act in accordance with the ATO's notification. Accordingly, the ATO will be required to:
- make rules for identifying and selecting a person's stapled fund
- create and administer a digital platform to receive and respond to requests from employers about whether a stapled fund for their employee exists
- provide employers with the information needed to be able to comply with these new rules.
Hopefully, the regulations will also prescribe circumstances in which the Commissioner may notify an employer of any errors in the information provided to them.
Discretion to reduce an employer's individual superannuation guarantee shortfall
The Bill also introduces a discretion for the ATO to reduce an employer's individual superannuation guarantee shortfall (including to nil) for an employee where:
- the ATO notified the employer of a new employee's stapled fund
- that stapled fund did not accept contributions from the employer on behalf of the employee
- the employer makes another request to the ATO (to clarify the stapled fund's identity)
- the employer makes a late contribution to any other superannuation fund on behalf of the employee.
If the Commissioner identifies there is no stapled fund, the employer may be able to make contributions to its chosen default fund. Alternatively, the employer can ask the employee if they would like to choose a fund and can make contributions to the chosen fund. However, the safeguard will only apply where there is no chosen fund for the employee at the time the employer attempted to make the contribution. This reflects that if there is a chosen fund at that time, the employer should make contributions into that fund to comply with the Choice of Fund rules. As such, employers may want to consider how they evidence their attempts to identify employees' chosen funds.
The ATO will be required to make guidelines, via a legislative instrument, that must be considered when deciding whether to exercise this discretion.
The future, their super
The Bill is currently under review, but amending the Choice of Fund rules has clearly been on the Government's radar for quite some time, and it appears likely that these rules will take effect. However, the question remains whether they will take effect on 1 July 2021 or if the start date will be extended.
We will continue to monitor for updates will keep you informed as information becomes available.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.