Changing super funds and the impacts to insurance

On 1 July 2021, the first ever national performance report comparing MySuper superannuation funds was released. This report, by the Australian Prudential Regulation Authority (APRA), was driven by widespread concerns around the need to protect working Australians’ retirement savings from being eroded by excessive fees or poor investment choices. 

How are MySuper funds performing?

Most Australian workers are members of default super accounts, known as MySuper accounts. The report compares fees versus performance for MySuper funds over seven years, and found that thirteen of the big-name funds were shown to have failed the financial watchdog's performance test. 

What does this mean for members of poor performing super funds?

If you are a member of one of the poorer performing superannuation funds, you would have received a letter urging you to change super funds and where you invest your retirement savings.

While it’s great to see increased transparency on superannuation fund performance, you should also be aware that by switching super funds you could lose access to valuable life insurance attached to your superannuation.

Why is having insurance through your superannuation fund important?

MySuper accounts are required to provide insurance cover for death and total and permanent disablement (TPD), which usually means payment of a lump sum if you’re permanently unable to work due to injury or illness. 

Some superannuation funds also automatically provide income protection benefits to MySuper members, paying a monthly disability pension if you’re unable to perform your normal job. 

Automatic death and disability insurance has been an affordable safety net for many years, helping to provide insurance cover for thousands of workers who would otherwise be uninsured.

Limits to insurance cover after switching to a new super fund

The cover provided in your superannuation fund depends on the specific terms of the relevant policy of insurance. Changing superannuation funds means signing up to new cover, with a new insurer, which could leave you uninsured or with sub-standard cover.

Some barriers to obtaining full insurance cover in a MySuper account include:

• Exclusions for pre-existing conditions for the first six months to three years of membership
• Exclusions for members working in particular occupational classifications e.g. jobs that are considered hazardous
• Exclusions for new members who do not meet a policy definition of ‘active employment’ which might require that you are working a minimum number of hours without any restrictions
• ‘Limited cover’ for non-permanent workers such as casuals or contractors. The type of limited cover depends on the policy terms but may only pay out if you become unable to perform basic activities of daily living such as eating, dressing or washing
• Cover may be underwritten which will require completion of a medical questionnaire, exclusions may be applied and there are risks if you don’t fully disclose your full medical history

Things to consider before changing super funds

Depending on your individual circumstances, there may be significant advantages in remaining a member of the MySuper account that already has insurance cover in place without you having to meet ‘new member’ insurance requirements.

You should be particularly wary of switching super funds if, at the date that you seek to change your fund (and therefore your insurance cover), you:

• Have been absent from work or on restricted duties due to illness or injury;
• Are not employed in permanent full-time work;
• Have a pre-existing medical condition that could impact your ability to get underwritten insurance;
• Have a job that involves physical manual work or is dangerous; or
• Have received compensation payments (e.g. WorkCover, Centrelink Sickness Benefits / Disability Support Pension, etc.)
   

While we welcome more transparency around superannuation funds’ performance, any advice to “switch funds” should come with a warning about the related risks of losing valuable superannuation life insurance.

The new online comparison tool will help you understand how your superannuation fund compares with others in terms of your retirement investment but it won’t provide guidance in regard to your insurance needs. 

If you have ceased work due to injury or illness, please contact us and we can investigate your current insurance cover and help you lodge a claim. Call us on 1800 991 597 or start your free Super claim check now. 

The above is general information only and we recommend that you obtain specialist financial advice about your insurance needs before changing super funds. Visit Industry Super for more information.