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Australia’s best default funds

Last Updated: Tuesday, 4 December 2007

By Michael Laurence

Need to choose a super fund for your employees' default option? SmartCompany provides a 14-point guide to help select the best.

Labor’s plan to set up an optional no-cost superannuation clearing house for SMEs is a smart idea. It will clear the paperwork and expense for these employers, ensuring that their employees’ super contributions are directed to the funds of their choice or to the employers’ default funds for those who don’t make a choice.

Even heavyweight employers with highly sophisticated payroll systems can find distributing super guarantee and salary-sacrifice contributions a most laborious task unless they use a clearing house. Imagine the potential paperwork plight for some small businesses – it’s mountainous. 

SmartCompany spoke confidentially to one of Australia’s biggest employers that makes super distributions to about 80 different funds, including many self-managed funds. For various reasons, this employer is yet to make a decision about whether to use a clearing house, including the one offered by its current default super fund.

But even when the Rudd Government’s planned clearing house arrives as promised in 2009-10, the task of course still exists for employers to nominate default funds for employees who are eligible to make a choice but don’t do so, and who don’t have an automatic default fund(s) for super guarantee (SG) contributions already under a federal award. 

Here is a 14-point guide to picking Australia’s best default funds:

1. Check whether your employees are eligible for fund choice: The tax office has a straightforward guide to an employer’s obligations. It is a useful starting point. 

2. Check for minimum life insurance cover: From July 2008, an employer’s default fund must offer members a minimum amount of life insurance cover, as shown in the table below.

Source: Australian Taxation Office

Although this insurance level is worth checking, Alex Dunnin, research director at super fund rating agency SelectingSuper, says almost every fund (apart from self-managed ones) offers this basic level of insurance.