The stories of two ordinary West Australian men, whose super funds took their money for insurance policies they didn’t even know they had, have revealed how frighteningly fast your savings can disappear if you stop paying attention.
Shipping agent Wayne Mondy was distracted from his finances for two years, while he was moving with his wife and young son halfway around the world for work. It took this long to lose an entire super fund to insurance premiums he didn’t know he was paying.
When he left Perth for Canada he had $17,511 in a default AMP super account an employer had opened for him. He assumed he left the cash working for him. He thought it would at least be earning interest.
But a couple of years later, when he started up a fund with his new employer, he got in touch with his financial adviser and asked about rolling over the balance.
“He phoned me back a day later and said, ‘there’s no money’. I said, ‘what do you mean? There should be nearly twenty grand in there’. But no, they had chewed it all up.
“It absolutely stinks ... I’ll be 60 in December; I needed to start putting it together, and planning for the future. To find out that they swallowed up everything I had there it was a shock.”
An AMP spokeswoman said she couldn’t discuss individuals, but customers got information about superannuation and insurance on joining, as well as annual statements and notification about policy changes.
Perth self-funded retiree Stephen McMillan’s story shows how smaller balances can let super funds swallow savings even quicker.
He did a few casual work shifts to earn some extra cash. He earned $107 in super contributions, but AustralianSuper took just three months to guzzle the lot in insurance premiums and fees.
Mr McMillan had allowed his casual employer to open its default super account for him after its online system for some reason rejected his usual super account’s details. He and his wife were about to go on holiday and he thought the money would be safe enough until he came back and had a moment to organise rolling it over.
“This kind of paperwork is a big pain in the neck; I didn’t think there was any rush,” he said.
By the time they returned he had his first letter from Australian Super saying he had a new account, ten weeks after it was opened. The funds were already half gone.
“In the end once I got [my financial adviser] involved, they had kept taking all these funds out, there was $7.21 left in there,” he said. “He asked if we could just have it as cash. They said it would cost $35 in fees.”
AustralianSuper spokesman Stephen McMahon said the issue of superannuation from short-term employment being eroded by insurance had driven introduction of a new default insurance-free product.
AustralianSuper had begun discussions with government agencies about the new product, Super Only, which would protect the accounts of people employed under the Supported Employment Services Award, and short-term, seasonal or intermittent employees working less than six months.
To ensure it was used by those it was designed for, employers would be required to complete an application form and sign an agreement with AustralianSuper.
Super Only would be available for new members only and once they had joined they could still access insurance products if they wanted.
Some people with multiple super funds are paying for multiple policies, and prices have been increasing. While some people do get letters informing them about price increases, these are likely no more engaging a read than the annual statement, and many don’t read them and don’t notice when the hike starts chomping even more energetically at their savings.
Price is one thing, but value is another
This insurance isn’t like normal personal insurance policies you arrange for yourself, where premiums depend on the risk you personally present to the insurer.
The insurance the super companies are automatically opting people into is ‘group’ insurance, meaning premiums are based on a large pool of people, from the local yoga teacher who lives on kale smoothies to the smoker scarfing his third Krispy Kreme in the breakout room.
Also unlike individual cover, the terms and definitions change often and generally for the worse.
In 2014 AustralianSuper’s insurer TAL altered the definition of total and permanent disability.
Now, if your illness or injury means you can’t do your old job, but TAL decides you could retrain for a different one, no matter how at odds with your interests, experience or skills, it needn’t pay out.
“I have no doubt that insurers will trot out the old line that anyone can get work as a telemarketer or as a delivery driver,” Shine Lawyers solicitor Melissa O’Neill, an expert in this space, blogged at the time.
There was no clarity around when the worker would be assessed, meaning the insurer could simply draw out the claims process for years.
No insurance should be automatic. It should be a decision people make. Steve McMillan didn’t need the insurance; he just got shafted.Chris Cornish
The new definition now required workers to show they were so badly disabled they could not, in practical terms, work at all.
They might have to spend thousands of their own to get the medical and occupational evidence.
She believed people would just not claim because it was too hard and expensive, which would suit the company’s bottom line very well.
She voiced concern that other insurers would follow, and was proved right in 2016 when Sunsuper introduced default insurance TPD Assist.
People claiming after an injury not only had to prove they couldn’t go back to their old job, but that they couldn’t go into “any other job for which they have education, training or experience”.
If they proved this, they got not a lump sum but one-sixth of their benefit.
After that first payment, they then had to undergo “occupational rehabilitation”, and reskill for any work the insurer decided they could be “reasonably retrained” for.
They then had to prove, five more times, they couldn’t work in any other type of occupation that they could reasonably be retrained for, to get the next five annual payments.
“While they are suffering financially, and dealing with their very significant health issues and associated treatment costs, they have to worry about whether an insurer will consider them fit for some type of work which they have never done before, and require them to actually go out and search for that kind of work,” Ms O’Neill said.
“It makes it a very worrying time for the members and their families, at a time when they really should simply be concentrating on their quality of life – after all, that is the purpose of this type of insurance.”
She was “very concerned” that this type of policy was going to be rolled out across AIA, which holds about a quarter of the nation’s group insurance.
If you have group insurance in your super fund you have about a one-in-four chance it’s with AIA.
The way in which funds told members about changes was also poor, Ms O’Neill said.
“The number of people I speak to who had no idea their insurance terms and conditions had changed since they first joined their superannuation fund is quite staggering,” she said.
Chris Cornish, the financial adviser from Avant Financial who investigated the problems for Mr Mondy and Mr McMillan, said automatic insurance was “fundamentally wrong”.
Mr Cornish opted out of his own default super insurance after it changed terms and conditions without notifying him.
He came across this accidentally, while researching for a client, and discovered the company had quietly added four new exclusions, including that it would now not pay out if he died or was disabled due to participation in an “illegal activity”.
“That could mean accidentally running a red light, or speeding,” Mr Cornish said.
He opted out, and bought a new tailored personal policy that actually cost less.
His example illustrates what a 2016 government review found when it said some claims were being declined on “technical” wording, not in accordance with people’s “reasonable expectations”.
The Australian Securities and Investments Commission review showed 16 per cent of total and permanent disability claims were being declined. One individual insurer was declining 37 per cent.
Across the industry 14 per cent of life insurance claims were being denied. One individual insurer was declining 31 per cent of claims.
You can’t know if you are with that insurer, because ASIC didn’t name names.
And with deals being constantly renegotiated, these declined rates could rise.
A Fairfax Media expose that same year revealed a slew of super funds renegotiating contracts with insurers at a time when premiums were surging up to 200 per cent. “Tense negotiations” were forcing some super funds to either cop massive hikes or trade away member rights; some policies verged on junk.
Regulating a $6 billion business – piece of cake, surely?
After such damning reveals the “warring factions of the $2.3 trillion superannuation sector” converged on Canberra, fighting to keep the $6 billion group insurance business.
The federal government charged an industry-led group to design a code of practice capping insurance premiums according to age, that is, 1 per cent of earnings for under-25s.
But the code, finally introduced last year, was voluntary, when the government had expected it to be binding.
The government, fed up, used its 2018 budget to force companies to act.
From July 1, 2019 they will remove default cover for new members under 25, members with less than $6000 in their account and members who haven’t made a super contribution for 13 months.
“I don’t think, as a professional, that this goes far enough,” said Mr Cornish, the financial adviser. “No insurance should be automatic. It should be a decision people make. Steve McMillan didn’t need the insurance; he just got shafted.”
ASIC deputy chairman Peter Kell told a superannuation industry conference in February the market was clearly not meeting consumer expectations, hence the “unprecedented scrutiny”.
“We are currently undertaking a ‘deep dive’ into total and permanent disability claims following our broader review of claims handling in 2016, and we will report results later this year," he promised.
Meanwhile, empower yourself. Check your statements for insurance premiums and get a couple of online quotes to compare – your future self will thank you.
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