A recent shocking report that found Australian employers are short-changing workers to the tune of around $5 billion a year in compulsory superannuation contributions. What super funds should do about it is unclear.
The report, produced by lobby group Industry Super Australia and construction industry fund Cbus, found that one in three workers were not receiving their full Superannuation Guarantee (SG) entitlements. It was estimated that in the year ended June 2014 roughly $4.6 billion of super went unpaid.
Treasurer Scott Morrison has responded to the report calling its findings “alarming”.
An upcoming Senate Inquiry will examine the role of the regulators in scrutinising the compliance of employers in their duty to pay super contributions.
While the Australian Tax Office holds ultimate responsibility for imposing fines and penalties associated with not meeting SG obligations, some super funds have also been engaging with employers in attempts to secure members’ money.
Writing for Investment Magazine in November 2016, Australian Institute of Superannuation Trustees chief executive Tom Garcia said that when employers do fail to make payments, super funds are in the “strongest position to enforce compliance”.
Investment Magazine spoke to four industry super funds to find out how they are dealing with the issue of non-payment.
REST Industry Super
With more than 2 million accounts, REST Industry Super is the largest super fund by membership. Around 2 per cent of all contributions received each month are from employers who have been contacted after falling behind on the terms of their SG agreement.
“This follow-up process includes sending a number of reminders to employers when their superannuation contributions fall behind. In cases where there are outstanding contributions and where there is no commitment to pay from an employer we work with a third-party agency to represent our members’ best interests,” REST chief operating officer Andrew Howard said.
During the 2015-16 financial year REST referred an undisclosed number of employers to a third party agent who collected approximately $24 million from employers in arrears.
However more often than not late payments were the result of an administrative oversight rather than deliberate non-payment, Howard said.
This reflects the fact that a large number of REST members work in part-time and casual roles, resulting in a variety SG obligations for employers.
As such, REST worked with employers to help ensure the information the fund had in relation to their SG obligations was up to date.
Hostplus also primarily took an education approach with both members and employers, according to executive officer David Elia.
“We continually inform employers of their obligation to pay SG contributions, and inform them of the risks and penalties of not doing so,” Elia said, adding this was achieved through various channels including monthly and quarterly payment reminders in advance of the four-month SG cut-off date.
Employers also receive notification in writing if they have missed the SG cut-off date, as well as an outbound call.
Elia was ardent in its support of the ISA/Cbus report’s suggestion for: real-time payment, reporting and compliance of SG; closing the loophole that allows employers to count salary sacrifice amounts towards the SG total; greater resourcing for the ATO to recover unpaid SG amounts; a clear, enforceable mechanism for super funds to recover unpaid super from employers on behalf of members; and retaining strong penalties against employers who fail to pay SG including personal liability for company directors.
At Kinetic Super the education push was focused more on members rather than their employers.
If an SG contribution was missed, members were directly contacted by Kinetic to make them aware that the employer contribution had not been received.
“We also have a structured employee workplace education program in place which focuses on educating employees about their super entitlements, including payment amounts and payment periods,” Kinetic Super executive officer customer growth Cameron Doig said.
“By educating members, they become more aware of their entitlements and how to make the most of their super.”
Doig suggested the 30 per cent who were missing out on SG contributions could have their outcomes improved through the use of automated digital alerts, which would notify them when an SG contribution had not been received.
At CareSuper, the strategy of choice was to utilise the services of Industry Funds Credit Control (IFCC) to provide an arrears reminder and collection service where the level of expected contributions had not been received.
A division of Industry Fund Services, IFCC was setup with the express purpose of recovering outstanding superannuation contributions, with the offered services ranging from end-to-end arrears management to specialised legal and insolvency activities.
Employers who did not respond to the initial recovery process through IFCC, were referred to a legal and insolvency team.
“Seventy per cent of the employers who are referred to the legal service pay the outstanding amount on receipt of the first solicitor’s letter,” CareSuper chief executive Julie Lander said.
She added this process could be improved through additional data capture of salaries by the super funds, or enforced collection through a government agency, such as the ATO.