People whose small super balances are transferred to the Australian Taxation Office will be better off despite losing their insurance cover, a Senate economics committee has heard.

Treasury GM for Personal and Retirement Income Paul Tilley says proposed legislation is designed to protect accounts from erosion.

“Analysis we have points to the typical fees and charges on small accounts,” he told the committee.

“A small account of $1000 [belonging to] someone who is 20 years old would have earnings, based on average industry earnings, of about $54 and fees of that same amount, as a result of the member protection provisions. But they would have insurance charges of typically $116.

“That account would go backwards by $116 [but] if it were held as lost money with the tax office it could be expected to earn interest at CPI.”

Mr Tilley says the 20-year-old in his example would be $700 better off over five years, while a 30-year-old with a $2000 inactive account “would be more than $1000 better off”.

Association of Superannuation Funds of Australia Acting GM Policy Fiona Galbraith says the group has serious concerns about insurance policies if money is moved.

“Transferring those accounts means the insurance cover for those members in those funds lapses,” she told the committee.

“This may have consequences downstream if, for example, that member were to suffer a [total permanent disability] event or, worse still, pass away.”

Ms Galbraith says the Australian Institute of Super Trustees and the Financial Services Council share her concerns over loss of life insurance from auto-consolidation.