Superannuation fund trustees need to be held to the same standards as financial advisers when providing information around the manner in which premiums inside superannuation may erode member balances, according to the Workplace Super Specialists Association (WSSA).
In a submission filed with the Productivity Commission (PC), the WSSA said that when superannuation funds were providing information to members about insurance balance erosion trade-offs, it was essential that a balanced argument was provided.
“Superannuation funds should be held to the same standards as an adviser would be in this aspect,” it said. “Showing the erosion in account balances is just a cost argument and must be compared with the difference in outcome to a member should an insurance claim arise.”
The WSSA submission argued that a large opt-out of insurance cover would inevitably lead to more people becoming dependant on family support or social welfare, with more people living below the poverty line, which was not good for Australian society or for the economy.
Elsewhere in its submission, the WSSA recommended encouraging higher levels of fund member engagement with their super through education and financial advice but suggested that life-cycle products represented the next best solution.
“As not all fund members will be engaged, the next best solution is to allow trustees to provide life-cycle products,” it said. “If a member is invested in a life-cycle fund over their working life, the benefits of the trustee changing the investment allocation over their life could be significant.”
The WSSA said one of the major problems it had with the MySuper legislation was that it placed all members in the same investment option with employers having no ability to tailor investment selection to suit their workforce.
“It seems impossible to us that trustees can make appropriate decisions, in the best interest of members, when members in the MySuper fund could range between 16 to 75 years old,” the submission said.
“Life-cycle products are designed to reduce investment risk for people as they get older, assuming they have a reduced appetite for risk. While this will not be the case for all members it is a better solution than doing nothing, as investment losses in the later stages of life can not necessarily be recovered over time; particularly if the member commences an income stream,” it said.
