With the introduction of super choice on July 1, 2005 drawing near, employers are feeling increasingly anxious as they consider how choice of fund legislation will impact their business and how they will manage multiple employee superannuation payments to different nominated super funds. Many opinions abound on exactly what will happen, but with no standard technological operating environment, funds must be careful when choosing clearing house solutions.
Many super funds are currently offering clearing house capabilities to their employers as a way to maintain and build business relationships as their default fund of choice. A clearing house allows funds to make one consolidated payment on behalf of employees to their chosen funds in a single transaction.
In addition to acting as the default fund, funds also want to control their back-office expenses as choice threatens to drive processing costs up for many. Industry standards still need time to develop as there is little definition on what information must be carried within a choice of fund return. At the front end of the process, details for the standard choice form are reasonably well defined. But issues in the back office such as duplicate or unknown member identification and employer registration lead to additional (and expensive) manual intervention, with no regulatory help in the foreseeable future.
Based on these issues, super funds must ensure they are not locked into inflexible models as they enter the initial choice of fund period, as the environment surrounding choice will continue to change. This change will almost certainly be regulatory, it may be market driven, or come from a desire to lower costs or offer more services and capabilities to employers.
A clearing house solution must take into account several key supporting elements:
eCommerce Solution — there must be a method for employers to quickly and easily submit contributions to both their default and other external funds. In addition, this capability should ideally support a model where an employer can submit their contributions to the fund’s back office in a suitable file format.
Clearing House Solution — the eCommerce system should sort contributions destined for external funds and make them available for delivery. Ideally, this capability should require no or very few changes to infrastructure at the default end.
Payment Solution — employers are in control of the payment process and the clearing house must support any model they choose, including:
* employer paying the default fund and each external fund directly;
* employer signing direct debit authorities with the default fund to pay contributions directly, and into a clearing account to pay external funds;
* employer crediting the default fund and the clearing account; and
* employer signing a direct debit authority with the default fund, and a direct debit authority with the clearing house banking partner to pay contributions destined for the external funds.
Service Options — additional services crucial to making the end-to-end processing successful include having:
* an effective register of public offer funds, containing relevant information such payment methods;
* the ability for employers to add their own funds as they require;
* capabilities to allow all interested parties, default funds or external funds to view the current status of contributions returns and payments;
* standard support features such as help desks to allow employers to understand the status of their returns; and
* the ability to validate and fix errors in data files before transmission to reduce the amount of costly rework.
Most of the conversation in the industry regarding choice of fund is about sending contributions and payments to other funds. However, very little has been said about the issues of receiving contributions and payments beyond some discussion concerning the need to register an employer before accepting contributions.
Unless a superannuation fund is closed to choice of fund contributions, they need to think about what choice will mean to them as they become an ‘external fund’. They must think about what to do to make delivering contributions and payments to them easier.
To solve these issues, funds will need to add a gateway product to the solution, whose task is to receive files from the range of clearing houses that will be delivering contributions.
If as a super fund you have all the above solutions in place, yours is truly an end-to-end model that will help streamline account administration and help keep your employers satisfied.
Whatever you do in the coming months, make sure your choice of fund technology strategies have options for you to move with market demands and legislative changes. These are inevitable in the coming months and years ahead, so don’t lock yourself into one option with little flexibility.
David Brebner is marketing manager of Essential Computer Systems
