Published 05 May 2017
The Productivity Commission's (PC's) draft proposals for alternative default models of superannuation funds may lead to members missing out on key insurance benefits, including total and permanent disability (TPD) cover.
The Association of Superannuation Funds of Australia (ASFA) has lodged a submission criticising four models that the PC put forward to shake up existing default arrangements.
According to the PC, two-thirds of members stick with a default fund from their employer, which means people are assigned a new super account each time they switch jobs.
Having multiple accounts means individuals may 'lose' their super as it sits idly in a forgotten fund. Meanwhile, members are likely to be accruing unnecessary fees across each fund that eats into their retirement pot.
As such, the PC has proposed four models to eliminate these problems by ensuring everyone is only assigned a single default super during their lifetime, which could give retirees a $25,000 boost in their golden years.
Insurance 'not included' in quality assessment
The ASFA has argued that all four models assess a default fund's quality without taking into account bundled insurance offerings, which the PC claimed should be dealt with as a "regulatory add-on".
Dr Martin Fahy said insurance is a crucial component of the super system and will be for the foreseeable future.
"Insurance in super helps alleviate Australia's underinsurance problems and lifts competition within the default sector as funds differentiate," he explained.
"It provides key benefits to members and this led to the consequential prescription of insurance as a mandatory feature of MySuper or default products."
The ASFA's submission draws specific attention to staggered TPD benefits aimed at promoting rehabilitation and a member's return to the workplace.
How could this affect TPD claims?
People who become permanently disabled can often access important financial support via a TPD claim through their superannuation fund.
However, ASFA implied that members could be left without vital cover if new default fund models were introduced.
"Removing insurance would potentially increase underinsurance and put vulnerable Australians at risk of reduced protection," Dr Fahy commented.
The PC's final report into alternative default models is due for publication in August, although it's currently unclear whether ASFA's submission will have an effect on the final outcome.
Our expert superannuation dispute lawyers can help individuals whose TPD claims are rejected, so please get in touch with Gerard Malouf & Partners Superannuation Lawyers for more information.