Concerns are being raised over the Federal Government’s proposal to compulsorily consolidate superannuation accounts under $1000, with advisers saying it will result in members losing life insurance cover.

Assistant Treasurer Bill Shorten says the Stronger Super reforms are designed to help consolidate members’ multiple accounts. Australians have an average three superannuation accounts which are accumulated as they change jobs.   

“New processes will see lost and inactive accounts, with balances under $1000 and in eligible rollover funds, consolidated into the member’s current active account, unless the member opts out,” he said.

“This reform will reduce the amount of fees paid on multiple accounts and maximise retirement benefits.”

Financial Planning Association CEO Mark Rantall says while the association welcomes further clarity on the reforms, including the new low-cost MySuper fund proposal, it questions key advice aspects of the package.

He says the low balance fund consolidation proposals are “particularly concerning in respect to insurance cover being cancelled without a member’s consent”.

“This would be further exacerbated if the proposal to increase this measure to apply to accounts under $10,000 from 2014 goes ahead.”

Corporate Super Specialist Alliance (CSSA) President Douglas Latto says the reforms will impact life insurance policies held within superannuation.

“The CSSA is concerned members who are forced by the Government to leave their low-fee corporate super plans will lose the insurance policies they already hold,” he said.

“The insurance cover could include important benefits such as salary continuance, which the member may not be able to replace.”

Mr Latto says these benefits are part of low-cost insurance policies based on the number of members in a fund.

“The problem is that with members leaving corporate super plans en masse, the cost of insurance policies for members remaining in the fund will have to increase,” he said.

“That’s obviously a poor outcome for those who stay, as well as for those who go.”

The other major proposal of the Stronger Super package is the MySuper product that will replace existing default funds.

MySuper products will have to provide life and total and permanent disability cover for members unless they opt out.

The member will have 90 days to exercise this option or on the anniversary of when they joined the fund.

The Government is proposing a ban on group insurance commissions for these products.

Mr Latto is sceptical about components of the MySuper proposal in relation to insurance.

“The proposal contains a massive motherhood statement to the effect that a member’s superannuation will not be reduced by premiums for insurance cover that the trustee has determined is not suitable for their members,” he said.

“How can a trustee have any idea what is suitable for a member when trustees are not required to know anything about the member’s financial situation?”

The Government has said some of the proposals in Stronger Super will be refined after industry consultation before any legislation is drawn up.