Employee Choice Arrangement: 230,000 expected to switch early — don’t move for its own sake

This article is a rewrite of a report from August 2012.

The November 2012 Employee Choice Arrangement (“semi-free choice”) let employees switch their own contribution portion once a year. Citing Australia’s experience, the MPFA estimated about one in ten employees — over 230,000 — would move accounts early on.

What were the transfer rules?

The employee mandatory-contribution portion could move in full to a favoured trustee and scheme, once a year. An MPFA senior manager explained:

• The right could be exercised on any day between 1 January and 31 December.
• Transfers typically took six to eight weeks.
• Example: exercising the right this November moved employee-contribution benefits accrued through November to the new scheme; December onward contributions stayed in the original plan.

Would switching multiply accounts and fees?

More accounts, but no higher fees. Exercising the right left employees with at least two accounts. Asked whether fees would rise, the senior manager said no: fees scale with total principal — split balances meant proportionally smaller fees per account.

The biggest pre-switch reminder?

Don’t switch for its own sake. The transfer process carried an investment gap; the authority advised against moving blindly lest buy-high-sell-low result.