Mercer Partner David Knox has called for more flexibility in life insurance provided to members of the proposed MySuper funds.

Speaking at a Parliamentary Joint Committee hearing on the MySuper legislation, Dr Knox said a corporate superannuation fund can currently have different insurance arrangements for white and blue collar workers as well as casuals.

“The casuals might only have death-only cover, the blue-collar workers might have death and disability cover and the white-collar workers might have income protection as well,” he said.

“If a particular fund is only allowed to offer a single MySuper arrangement, then it will offer the same insurance cover for all members of that product.”

Dr Knox says the level of cover will be chosen by the trustee of the fund irrespective of the individual needs of the members.

This could lead to white-collar workers being offered less cover and the blue-collar workers being over-insured.

Committee Chairman Bernie Ripoll suggested people who are interested in their financial position in a fund could vary the amount of insurance they have.

But Dr Knox says the biggest concern is the people who are not engaged with the fund administrators.

“Some of those disengaged [members] may end up with more cover than they really ought to have, and that could erode their retirement benefits, or with less cover than they should really have,” he said.

“So it is the disengaged who are the main concern.”

Mr Ripoll argues that disengagement will always exist with life insurance when it is offered on a group basis.

But Dr Knox says the advantage of current practice is fund trustees can offer different levels of insurance to specific groups of employees.

“Under the current arrangements, if there are three or four groups of employees it is not right for every individual in every group,” he said.

“But at least we have broken them down into subgroups, as opposed to MySuper, where there is one approach.”

Dr Knox also highlighted to the committee the administration changes MySuper legislation will trigger, with fund administrators having to redesign their systems.

“We will have to renegotiate insurance arrangements with, potentially, 10 different insurers with more than 100 different types of insurance arrangements,” he said.

“Having done all that, we are going to have to change our administration system to implement all of those changes. That is an enormous job.”

Mercer estimates it could take up to two years to implement the changes.