very interesting case on a policy
Opt-out insurance policies eating into superannuation funds without people knowing
In Far North Queensland’s wet season, as the stream of tourists that keep his business afloat slowed to a trickle, Anthony Kruck took a casual job.
An opt-out insurance policy automatically deducts premiums from a super fund calculated at 10 times a man’s estimated annual earnings
The company says the addition of policies is in its product disclosure statement and provides refunds if account holders leave within 90 days
Consumer advocates say many people may unknowingly be in the same position
Tidying lawns and doing the odd repair for a local kindergarten, Mr Kruck worked as a handyman for just a few hours a week.
“My salary was just over $2,000 for a period of about four months,” the Atherton Tablelands resident said.
“It’s only a small amount, but it’s helping them out and it’s a little bit of pocket money for me when it’s quiet.”
Mr Kruck owns a small art gallery and has long been self-employed, but through nearly two decades of work in the mining industry, he also had a superannuation account that is now mostly inactive.
Through his casual employment, he eventually resumed making small contributions to the account, but in August he received a letter saying his retirement savings had shrunk.
Hundreds deducted from fund
In the letter, Mr Kruck learned his super provider, Mine Super, had added insurance policies for income protection and death and terminal illness to his account when it became aware of his employment.
“They were already actioned and premiums had been deducted from my super fund.”
He also learned the price of the income protection had been calculated for an annual salary of $80,000 — more than 10 times his estimated annual earnings through the casual work.
“They then obviously checked up with my employer and found my start date was in April 2019,” Mr Kruck said.
“They’ve then backdated the premiums.
“I’m not a gambling man, but [in August] I would’ve taken the odds and put a wager on the fact that I wasn’t going to die back in April.”
Combined, the policies cost about $100 per month. The back-dated contribution meant more than $300 had been deducted from a super account that had long been dormant.
Similar complaints common
A spokesperson for Mine Super said the automatic addition of the policies was in its product disclosure statement and, for one of the policies, compulsory.
“The member has 90 days from the date of the welcome letter (which outlines the cover on the account, including the default levels of mining and salary at $80,000) to opt out or change their cover with a full refund,” the spokesperson said.
“We are also happy for members to update their salary levels at any time and encourage members to update their details so that their premiums are appropriate for their circumstances.”
Mr Kruck contacted the company and asked for the policies to be cancelled, at which point the deductions were refunded.
But he queried why the onus was on him to adjust a policy he didn’t ask for, and wondered what might have happened if he hadn’t opened the letter within the grace period.
According to Xavier O’Halloran from consumer advocate group Super Consumers Australia, a significant number of people may unknowingly be in the same position.
“Our research shows that about a quarter of people aren’t aware that they’ve got insurance in their superannuation,” he said.
While these insurance policies were designed to make sure all workers had a basic level cover, Mr O’Halloran said many proved to be inappropriate or not known about.
“Unfortunately these kinds of letters are all too common,” he said.
“We see a lot of people defaulted into life insurance that they don’t realise they have and may not actually need — particularly in this circumstance, where it was a bit of casual work on the side being defaulted into quite a high level of insurance that’s really inappropriate for what that person needs.”
System should protect its users
Changes brought in this financial year, which were intended to stop unnecessary fees, mean insurance policies attached to superannuation accounts are now deactivated after 16 months of inactivity.
Further proposed changes include an opt-in system for people under 25 and those with low account balances.
Mr O’Halloran said all policies were meant to prevent the kind of erosion of valuable super funds experienced by Mr Kruck.
But he also said that understanding hidden costs and fees was difficult for consumers, and called for the onus to be on the employer to determine whether policies were appropriate.
“People aren’t focused enough on their retirement savings, and the system should really make sure that for those that aren’t in focus, it still protects them,” he said.
“The biggest protection that we think should change in this sector is making sure that if people are being defaulted into insurance, that it’s actually insurance they need … and the funds