The first thing Cbus CEO Justin Arter articulates about the Federal Government’s new stapling rules which passed the senate recently is that they’re not bad… in concept.
“Let me start with the overarching observation that Cbus thinks improving the superannuation system for everyone to avoid duplicate accounts and get better value for their dollar is a good thing,” he said.
But for the boss of the fund which has more than $50 billion in assets under management there are a number of serious caveats.
The first is performance.
“As matters stand,” he said, “you can be stapled to an underperforming fund, which is surely at odds completely with what the government would seek to achieve.”
“None of us wants underperforming funds out there. Not just because it gives the industry a so-called bad name but because it means people are getting less money in their retirement nest egg, it’s as simple as that. So, we think that’s a bad thing.”
But where the situation starts to falter for Arter in an even more compelling way is in the insurance arena, specifically where members may become attached to a particular insurance along with their original fund which could have unforeseen and serious consequences.
Arter said just under 20 percent of working Australians have been assessed as being in what are designated dangerous occupations.
“We cater for a group of workers who are in [those] dangerous occupations. [But] if you join a fund in the first instance, even if it’s a strongly performing fund and most typically, the first job you would have would be pulling beers or in retail or hospitality, that’s all fine and there’s various funds there that will service you very well and give you investment returns. We have no beef with that,” he said.
“But you may [then] go into an occupation which is one of those 20 percent of dangerous occupations and unfortunately, if you omit to move your fund, and most people who are around 19 and 20 [years old] pursue no engagement whatsoever [with their fund] why would you bother about super let alone the underlying TPD [total and permanent disability] policy, which is kind of, you know, two centimetres thick.”
“You can imagine how it goes, you move from working at Maccas to one of the other dangerous occupations or in construction without moving funds because it’s been stapled and you have an accident, and lo and behold, you have no insurance, you have no TPD, so you’re in a pretty bad place.”
Arter also pointed out that the kind of insurance needed by workers in dangerous occupations isn’t always readily available and can be expensive even if it is.
“We have over half a million members who were pooled into this with our insurance underwriter,” he said.
“Insurance works on pooling, it only works on pooling, actually pooling of risk. And because we’re such a big buyer, we can obtain a good deal on the price of insurance for our members.”
Mind the fine print
Super Consumers Australia director Xavier O’Halloran similarly doesn’t see stapling as a bad thing, in concept, but also has some serious concerns on the insurance front.
“The biggest benefit is it will put an end to duplicate accounts, which is not insignificant. [Having] multiple accounts has also contributed to disengagement. We’re really glad to see that problem solved overall,” he said.
But he added the system was already imperfect, when it came to insurance.
He agreed that there was a real possibility people may end up stapled to funds that may have poor quality insurance or insurance that wasn’t appropriate for their occupation and as such he said he was glad the government had announced that there’d be a further consultation inquiry into it.
“In our own work we identified… superannuation funds that had some kind of occupational exclusion in their [insurance], which would affect people… where they might start out with one job and they’re transferring to a higher risk occupation down the track. What we did find though, is that the funds where these types of exclusions existed, were funds that were unlikely to see new [members] enter for the first time as part of the default system,” he said.
“It seems [though] there is some uncertainty about whether people would actually be affected by this and who would be affected. I think that that’s why there needs to be this inquiry, so we can clear up exactly which funds have issues.”
But this is not the only area of complexity O’Halloran was concerned about, the actual terms and conditions of many of the insurance policies was far from clear.
“I don’t know if you’ve ever tried to get to grips with these [insurance] policies. [They] have some pretty opaque terms and interpret them in weird and wonderful ways,” he said.
“I still think this consultation is absolutely necessary. You need to really get to grips with how each of these funds offer their policies. Our research shows some insight into what they say at the desktop level. But… on some of them, we had to get lawyers to look at them to interpret them. In others, we actually had to request additional documentation of the contract between the insurer and the super fund to uncover what the TPD terms meant, it wasn’t clear in the customer-facing information.”