With submissions on MySuper Tranche 3 due 16th May, the Corporate Super Specialist Alliance (CSSA) is concerned that a significant number of corporate super members are in danger of losing their insurance cover.
According to CSSA President, Mr Douglas Latto, there is a fundamental flaw in the assumptions made by Treasury regarding what happens to a member’s benefits when they leave a corporate superannuation fund.
“When an employee leaves their employer, and is no longer eligible to be a member of that employer’s corporate fund, and no instruction has been received from the member, current practice is that benefits are transferred to a personal fund, with, in most cases, the insurance cover being transferred as well.
“This is commonly known as ‘flipping’. With the introduction of MySuper in July 2013, this practice will disappear.”
The Treasury has suggested that all these funds are transferred to a MySuper fund by 1 July 2017 if the member has not made an investment choice. The CSSA has termed this as ‘back-flipping’.
The concern is that Explanatory Memorandum 6.40 suggests that most insurance arrangements attached to investment benefits cease at the point a member leaves a fund – the opposite to what actually happens. It assumes that an automatic transfer to a MySuper fund will not result in lost benefits.
Said Mr Latto “We have conducted our own research and found that 74% of members with balances over $1,000 have insurance cover within their fund. This increases to 81% for balances over $10,000. This cover could be for Death, Total &Permanent Disablement or Income Protection, or all of these.
“For many members, this may be the only cover they have and, if lost, it could prove to be too difficult or onerous to obtain replacement cover outside of automatic arrangements under super.
“With the underinsurance of the Australian market being a major concern, the introduction of a process which will result in the loss of this cover is disturbing.”
The Treasury proposal is that members be given an “opt out” option to elect not to be transferred to a MySuper fund and have a subsequent loss of benefits. But, as we know, without advice, many people will not fully understand the consequences and simply do nothing – especially at a time when they are likely to have other things on their mind, such as starting a new job.
So what’s the answer? “The CSSA submission is proposing that, rather than a member be required to “opt out”, the option should be to Opt-in to the MySuper offer” concluded Mr Latto.
