Choice of superannuation fund - members of defined benefit funds

Can a fund, selected by an employee who is a member of a defined benefit scheme become a chosen fund for the member under section 32Fof the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

No. A fund selected by an employee who is a member of a defined benefit scheme cannot become a chosen fund for the member under section 32F of the SGAA by virtue of subsection 32F(3), as none of the powers under the trust deed of the defined benefit scheme are exercised as a result of the member making a choice. The member remains entitled to the same amount of benefit from the scheme.

The employer makes superannuation contributions to a superannuation scheme for the benefit of its employees.

The scheme is a defined benefit superannuation scheme within the meaning of subsection 6A(1) of the SGAA.

The members of the scheme are defined benefit members within the meaning of subsection 6(1) of the SGAA.

There are a number of provisions available under the trust deed of the defined benefit scheme which can be used to change the amounts of the benefits payable to a member of the scheme in certain circumstances.

However, there are no provisions in the trust deed which result in the benefits of members being altered as a direct result of an employee choosing another fund as their chosen fund.

The choice of superannuation fund requirements, which form part of the SGAA, are effective from 1 July 2005. Section 32C of the SGAA details the types of contributions that will satisfy the requirements. Subsection 32C(1) ensures contributions satisfy the requirements if they are made by an employer to a 'chosen fund' of the employee.

Subsection 32F(1) of the SGAA states that if an employee wants a fund to be their chosen fund, the employee must give the employer written notice to that effect. However, subsection 32F(3) states that a fund (the selected fund ) cannot become a chosen fund for the employee under section 32F if: (a) immediately before the employee gave the notice to the employer, the employee was a defined benefit member of a defined benefit superannuation scheme; and (b) even if the selected fund were to become a chosen fund for the employee, the employee would be entitled, on the employee's retirement, resignation or retrenchment, to the same amount of benefit from the defined benefit superannuation scheme as the employee would be entitled if the selected fund were not a chosen fund for the employee.

According to the Explanatory Memorandum that accompanied the Bill which inserted the choice of fund requirements into the SGAA, the purpose of subsection 32F(3) is to ensure that an employer will not have to make contributions to a fund chosen by the employee while also being required to finance that employee's right to receive a full retirement, retrenchment or resignation benefit from the defined benefit fund.

In this case, as none of the powers under the trust deed of the scheme are exercised as a result of the member making a choice, and the member remains entitled to the same amount of benefit from the scheme, subsection 32F(3) will apply and the selected fund cannot become a chosen fund of the member.