Stronger Super - auto-consolidation or auto-confiscation?

Group insurance roundtable

Part 1: New data rules forge missing link between insurance and super
Part 2: Can MySuper timeframes actually be met?
Part 3: The search for common standards on terminology and data
Part 4: Stronger Super - auto-consolidation or auto-confiscation?
Part 5: The post-election prospects for Stronger Super
Part 6: The outlook for group insurance
Part 7: Making funds transparent on insurance premium rises

A Super Review roundtable examines the policy challenges surrounding Stronger Super and, in particular, auto-consolidation.

Mike Taylor, managing editor, Super Review: Of course there’s lots of aspects to Stronger Super and this has been acknowledged. Tranche four probably won’t see the light of day in the term of the current Parliament given the polls, maybe not in the following parliament, who knows?  

But one of the things that was talked about a lot last year and the year before and I think caused a lot of consternation was that terrible word – auto-consolidation. Auto-consolidation, to me, looked like a severe policy challenge for everyone. 

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To what degree is that now factoring in as a challenge? 

Alex Hutchison, CEO, Energy Industry Super: Well let’s call it by it’s proper name, “auto-confiscation” that is the correct term, let’s not kid each other – and I’m not in favour of it. 

Adam Kirk, general manager, distribution, Australian Ethical: I think there’s some severe risk to it in that people have valuable insurances that they have put there and wanted to retain there and if that’s not considered in the transfer across, then people could be losing benefits that they want and need. 

Jeff Scott, executive manager, business growth services, CommInsure: I think the one good thing though is that in the current format it’s actually on an opt-out basis. So the SC notified the member that here’s what’s going to happen before, at least in theory, the situation arises. 

Now the question becomes, how many members when they receive this notification from the fund will actually open up their letter, read it and action it appropriately, saying “please do not auto-consolidate my funds”? 

If they are diligent enough to actually do this - great, but the majority of members, once they see that piece of paper coming from their super fund, they take it and either put it in their normal file or they put it in a circular file, which means that a person may inadvertently lose those valuable insurance benefits, so it’s a valid concern. 

Adam Kirk, Australian Ethical: It requires their action to actually stop the process, and in a lot of respects MySuper has been positioned as this easy set-and-forget type of superannuation plan for investors, and so the apathy around superannuation is almost encouraged. 

Andrew Bragg, policy director, Financial Services Council: Correct. We always vigorously opposed it, going back to when it was first suggested. My prediction will be that it will never see the light of day. 

The most recent government policy announcement was that they were seeking to legislate at $1000 – auto-consolidation, “auto-confiscation”, like Alex said, I quite like that. 

To illustrate what we thought it would do last year, we undertook some research which was a sample size of about seven-and-a-half million accounts – given that you’ve got around 26 million active accounts in the industry that haven’t been lodged with the Tax Office – so about 25 per cent sample size. 

Based on that sample size about eight million accounts will disappear over night if you had a threshold of $1000, and I think it was close to two million of those eight million accounts had insurance attached to them, so I think that’s the telling point. 

How on earth can the Government legislate for you; how would they know whether you’ve too many accounts or why they’re there? People collect them for whatever reason. 

Jeff Scott, CommInsure: In many cases people made a conscious decision to keep the insurance in their old fund for the simple reason that they cannot get insurance in their new fund, either due to a cost issue or the new fund doesn’t offer the benefits and features that they’re looking for, or they’ve had health issues since the time they joined their old fund to the time they joined the new fund. So in many cases, this has been a conscious decision. 

And you’re right, I love your terminology: if they used the auto-confiscation then this actually flies in the face of what the Government is currently trying to do with the disability support scheme, which is making sure that if people have a bad time in their life due to health or illness issues, then they become as self-sufficient as possible and the Government is there to support them only in the worst case scenario. 

If a person is taking that action to try to look after themselves in the first place, then why should we ever take that away from them? 

Jenny Oliver, group life, commercial manager, TAL: Absolutely. We pay those members today. The realities in our claims department today are that there are people who would fall into that two million bucket that get paid insurance today. 

We know that makes a difference to their lives, we know that helps them, so it would be an awful scenario where they went to claim on that and they just didn’t have it. 

Geoff McRae, senior analyst, Rice Warner: The reality is that with what you might call a Tax Office grab from these so called lost accounts at the moment that, with the way that’s been administered, there’s not going to be many accounts left for auto-consolidation because the Tax Office will have already grabbed them. 

Certainly in some cases this has been really poorly administered. I take one account I’ve got where the balance was a huge multiple of one thousand, but that got shovelled off to the Tax Office on the basis that they hadn’t had contact with them for five years, despite the fact that I’d written correspondence with them in the past three months. 

It was a straight error, but then it takes a minimum of 30 days to get the money back. But for these people with small balances, a lot of those balances will find their way to the Tax Office and the insurance will disappear. 

The only time the members will find out about it will be when they get a letter from the fund with the X statement attached.

As Jeff referred to before, whether that gets read or not, or whether they take the steps, is another matter.

But even if they do take the steps to retrieve that money from the Tax Office, the insurance is cancelled when the money is sent off to the Tax Office. 

Alex Hutchison, Energy Industry Super: Sorry, my understanding is you log onto the ATO website in the future and you say consolidate my super. 

At that point in time, that’s when you are going to lose, that’s my understanding. It’s too late, you’ve got no interaction with the fund.