Families disadvantaged due to MySuper legislation

Douglas Latto

Douglas Latto

The mandatory transfer of personal superannuation accounts to MySuper will result in thousands of people losing insurance entitlements attached to their superannuation, according to the Corporate Super Specialist Alliance (CSSA).

“Not only will people lose the insurance cover attached to their previous super funds, they will also have no legal recourse to pursue for their loss,” says CSSA president, Douglas Latto. “This is because MySuper legislation contains immunity for the trustees. Consumers cannot sue the trustee because the trustee is protected by legislation passed by the previous government.”

The transfer to MySuper accounts has begun. It is occurring because the MySuper legislation requires all super members that have not made investment choice, or are 100% in the default investment option, to be transitioned to a MySuper fund by 1 July 2017.

“Those who are pushing for the transfers to occur as soon as possible are viewing the issue too simplistically and are not mindful of members who are at risk,” Mr Latto says. “Fees are not the only issue to consider when implementing these changes.  A lot of people have insurances and we know of a number of providers who are not only going to switch members to MySuper accounts, but who are also going to reduce or cancel their insurance as well.”

Mr Latto says the mandatory transfer to MySuper funds can result in significantly different insurance cover, with the member often oblivious.

“We have already heard some terrible stories. One person’s insurance was reduced from $1,673,000 to $60,000, others have had their cover cancelled completely. With most of the transition still to take place, the damage has only just begun,” he says. “The last thing we want to see is destitute families who have belatedly discovered that they have lost the insurance they expected to rely upon following the death or disability of a family breadwinner.”

Mr Latto says these issues are very significant to members, and the CSSA is urging the industry and government to look at the situation as a whole, instead of dealing with it as a side issue.

“Some superannuation funds are now offering low-cost ‘vanilla-based’ products that prescribe low levels of insurance cover without the option to have higher amounts,” he says. “So those who are being transitioned to these products are the ones who are going to lose out significantly.”

The solution, according to Mr Latto, is to make transition to MySuper ‘opt-in’, not ‘opt-out’ for all members with insurance cover.

“At the moment, it is quite clear that the best interests of many super fund members are not being met and unless we make MySuper ‘opt-in’, we will have a serious problem when claims arise.”

Mr Latto will be presenting on this topic at the Association of Financial Advisers (AFA) National Adviser Conference.  Visit www.afa.asn.au for more information.

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