What is a default super fund?

Deputy Editor · 25 August 2021
Knowing the ins and outs of how default super funds work could be important when it comes to maximising your retirement nest egg, or rebuilding it if you have recently withdrawn funds.

Whenever you start a job, your new employer will usually give you a superannuation fund nomination form to fill out. This form allows you to nominate which fund your employer should pay your super contributions into.

You might nominate a fund you already have some amount of super held with. Or, if it’s your first job, or you want to choose a new fund for yourself, you may decide to do some research, compare funds and decide on a specific fund you want your super contributions from your new employer paid into.

However, if you either don’t have a preferred fund or simply choose not to nominate one, an account will be created on your behalf with your employer’s chosen default super fund.

What is a default super fund?

A default super fund, also known as an employer-nominated fund, is the superannuation fund into which your employer will make your super contributions if you do not nominate a fund of your own choosing. According to ATO rules, every employer is obliged to make super guarantee payments on behalf of eligible employees, and the default fund is where those payments will go unless an employee has nominated a super fund.

According to Moneysmart, default super funds are intended to be simple, low-fee options, where an individual’s super is usually put to work in either a ‘single diversified’ or ‘lifecycle’ investment option.

An employer can select any industry or retail super fund as their default fund, but their fund of choice must offer a MySuper account. According to Moneysmart, MySuper accounts are designed to be simple and cost-effective, and typically offer lower fees.

The upshot of all this is that, for employees who do not take an active interest in their super, the MySuper system is designed to help make sure that your employer’s default fund will be an appropriate place for their retirement savings. However, there can be a significant difference in the performance of these funds, so it can be worth doing your research before joining one.

The superannuation regulator, APRA, has introduced a colour-coded system for rating the performance of MySuper funds, while Canstar’s experts rate the super funds on its database based on a range of factors to help consumers find a products that suits them.

Can I transfer my super to a different fund?

If your super is currently held with a default fund, you can apply to switch and have your super transferred to a fund of your choice. There are three ways that you can switch super funds:

  1. Use the myGov online portal. To do this, you will need to sign in to (or create) an account. Once signed in, if you have not already done so, link the ATO’s online service to your account via the ‘Link another service’ option. Go to the ATO portal, then go to the ‘Check Super’ menu. If your new account has registered with the ATO (this could take some time), a ‘Transfer super’ menu option will appear. You should be able to use this to consolidate your super funds.
  2. Ask your new super fund to consolidate the funds for you.
  3. Use the ATO’s rollover or transfer of super benefits services. There is an online option or you can download and print paper versions of the forms you need.

But remember, it’s important to weigh up the pros and cons of transferring your super to a new account. When looking for the right fund for your retirement savings, there are a lot of factors to consider, including the fees charged, the insurance on offer through the fund and the education and advice that’s available to members. The investment performance of the fund is also important to think about, but because investments can go up and down over time, a fund’s performance in the past shouldn’t be relied on as an indication of its likely future performance.

If you want to see if there’s a super fund that may be suited to your needs, you can compare your options with Canstar.

Compare superannuation funds with Canstar

If you’re comparing Superannuation funds, the comparison table below displays some of the products currently available on Canstar’s database for Australians aged 30-39 with a balance of up to $55,000, sorted by Star Rating (highest to lowest), followed by company name (alphabetical). Use Canstar’s superannuation comparison selector to view a wider range of super funds.

Fee, performance and asset allocation information shown in the table above have been determined according to the investment profile in the Canstar Superannuation Star Ratings methodology that matches the age group you selected.

Original article by James Hurwood.

Main image: MEE KO DONG/Shutterstock.com

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