Industry associations are urging advisers to start talking to their clients now about the potential risk to their insurance cover inside super as a result of the MySuper transition program.
The third tranche of MySuper legislation, currently before the House of Representatives, contains a requirement for super funds to transition members who are invested in their fund’s ‘default’ option to a MySuper product by 1 July 2017. Numerous industry stakeholders have raised their concerns over the potential loss of insurance benefits as a result of this transition, particularly for those members who have actively chosen to remain in the default option.
“The definition the Government is using to identify ‘default’ accounts is effectively capturing everyone, whether they’ve made a choice or not,” said the Financial Planning Association’s General Manager Policy & Government Relations, Dante De Gori.
I think there’s going to be a big role for advisers to get in and communicate with their own clients about this
“By definition the MySuper products are designed to be more ‘vanilla’,” Mr De Gori said, “Which means they may well have inferior insurance offerings than those available through other products. A consumer may go from having a certain level of insurance to having less cover, or inferior benefits, simply because they fail to ‘tick a box’.
“I think there’s going to be a big role for advisers to get in and communicate with their own clients about this.”
The ‘tick a box’ process to which Mr De Gori refers is the requirement for funds to send written notification to those members who are to be transitioned to a MySuper product. Regulations that accompany the legislation, released for consulation last week, specify that the notification must be sent 90 days prior to the transition, and provide details of any changes that will occur to the members’ benefits as a result of the transfer. According to the regulations, the notice is designed to give members an opportunity to opt-out of the transition.
Douglas Latto, CEO of the Corporate Super Specialists Alliance (CSSA), said many industry stakeholders were worried about the effectiveness of this approach:
“There was a lot of concern (at the PJC hearing) that even though people would be given these 90-day notices, most people would not ‘tick the box’. One of the statistics that was presented at that hearing was that when people do receive mailings that require them to tick a box, for any type of offer, on average only 30% of recipients will send the document back.
“The point we were trying to make is that these people, by the Government’s definition, are disengaged people. So why do they (the Government) suddenly think they’ll become engaged and tick a box when they haven’t been engaged in the past?”
Mr Latto also warned that the transition process was largely “flying under mainstream media’s radar”, meaning Australians were simply not aware of the potential impact of ignoring notices from their funds.
We could start to see those mandatory transfers happening from late 2013
Another issue raised by industry is the period in which the transitions will commence. While super funds have until 1 July 2017 to manage the transfer of default clients to MySuper funds, the Association of Financial Advisers (AFA) warns that transitions could commence as early as next year.
According to Phil Anderson, AFA COO, super funds will be required to report to the Australian Prudential Regulatory Authority (APRA) on “accrued default amounts” every quarter from late 2013. APRA also requires the fund to prepare a documented transition plan to manage the transfer of these amounts. With MySuper funds to commence operating from 1 July 2013, and allowing for the 90 day notification process to be implemented, Mr Anderson warned that: “We could start to see those mandatory transfers happening from late 2013 or early 2014.”
“The broad implications of MySuper, and particularly this mandatory transfer, will not have got to the attention of all advisers at this stage. Those with corporate super yes, but not necessarily everyone else,” Mr Anderson said.
“We will certainly be communicating with our members to update them on what happens and the implications for their clients.”
For more on the regulations relating to MySuper insurance arrangements and transition process, click here. Consultation on the regulations closes today, Wednesday 20 November 2012.
Yes this is of concern but let’s also ensure we make lots of noise with clients about the new and much more wide-reaching lost member and small account rules which will see account balances whisked off to the ATO with hardly a murmur about the total loss of associated insurance for the affected members. This looms large as well and the implications are pretty much under the radar on these.
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