The auto-consolidation of superannuation accounts under the MySuper regime runs the risk of leaving some members without the insurance cover they need, according to TAL group life chief operating officer Andrew Boldeman.
Speaking at the Association of Superannuation Funds of Australia conference in Brisbane, Boldeman said the risk was that people would be consolidated into an inferior product. While he acknowledged that everyone agreed reducing the number of inactive accounts was a good idea, he said some were arguing for insurance to be consolidated as well.
Maurice Blackburn Commercial principal John Berrill said "wiping" up to two million accounts could end up exacerbating the well-documented underinsurance problem in Australia.
At the moment, the cap on inactive accounts that will be auto-consolidated is $1,000, but that will increase to $10,000 after 1 December 2014.
Less than 2 per cent of people are likely to 'opt out' of having their accounts consolidated, Berrill said.
"There'll be an obligation on funds to alert members about this. Inertia, lack of information and knowledge plays such a large part that the end result is something like a couple of million accounts are going to be wiped," he said.
The Peak Consultative Group, of which Berrill was part, came up with two problems to solve the problem of people ending up with less insurance after auto-consolidation. The first option was to keep the limit on auto-consolidation of accounts at $1,000; and the second was to alert the member upon the creation of a new employee account that their accounts are about to be consolidated, and give them the option to increase their cover if they need to.
The two options were passed on to the SuperStream Treasury working group, which tabled them in May 2011, according to QSuper member administration chief officer Matthew Halpin.
"There was division between the retail funds and not-for-profits in the room. It hasn't been discussed since July. I think it's going to be a challenge for that group to address," Halpin said.
