Employee Choice Arrangement moves accrued savings only: shift yearly, new money stays

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

The November 2012 Employee Choice Arrangement gave workers one chance a year to move past employee contributions to a favoured trustee. But each month’s new contributions still flowed into the employer-designated original account — consolidating meant repeating the “money move” every year.

Why so cumbersome?

To avoid wrecking employers’ payroll administration. The MPFA explained the scheme gave employees choice while shielding employers from disruption: if every worker chose a different trustee, employers would have to pay into each account individually. The authority would watch market reaction first and review if needed.

How long do transfers take? Will fees rise?

• Time: typically six to eight weeks. The law barred new trustees from charging handling fees.
• Cost fears: the arrangement could raise trustees’ admin costs; whether those get passed on as fees remained to be seen. The hope was that fiercer competition would push admin fees down.
• Current fees: average fund management fee 1.73%, though the spread across categories was huge. The authority saw further room for cuts, with no floor set.

What to consider before switching?

The MPFA urged no rush: weigh your age, risk tolerance, trustee service and scheme fit. Australia’s experience suggested about one in ten employees would move contributions to a chosen account.

MPFA 200-line hotline: 2918 0102.