The Corporate Super Specialist Alliance (CSSA) has proposed the automatic switch of superannuation members to MySuper products be done on an opt-in rather than opt-out basis due to concerns corporate super members are in danger of losing their insurance cover.
Currently when a corporate fund member leaves their employer their insurance cover is "flipped" along with their benefits into a personal fund, according to CSSA president Douglas Latto.
However 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, and as a result the practice of "flipping" will disappear when MySuper is introduced on 1 July 2013, Latto said.
The current proposal is that all these funds are transferred to a MySuper fund by 1 July 2017 if the member has not made an investment choice.
Latto expressed concern the explanatory memorandum seems to suggest insurance benefits cease when a member leaves a fund rather than being transferred, thus assuming an automatic transfer to a MySuper fund will not result in lost benefits.
CSSA research found 74 per cent of members with balances over $1,000 have insurance cover within their fund, and for balances over $10,000 that rose to 81 per cent.
"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," Latto said.
Under current proposals members will be able to opt out of the transfer to a MySuper fund, but without advice many members may not fully understand the consequences of the move and not take action, he said.
As a result the CSSA submission to the third tranche of MySuper proposed that the switch to MySuper should be done on an opt-in rather than opt-out basis.
