Remain alert during a merger

When funds join forces, it's important for members to ensure they still have adequate insurance cover

- Vita Palstrant

Super funds continue to merge, creating mega-funds with economies of scale that will provide members with lower fees and better benefits. While most of the attention will focus on investment performance, checking your life insurance is also important.

AustralianSuper, the country’s largest fund, announced earlier this year that the cost of its default insurance would drop by 11%, benefitting 99% of its insured members. The not-for-profit fund manages $260 billion for 2.6 million members.

The fund aims to keep its insurance costs to less than 1% of salary, emphasising the benefits. “Insurance is an important part of members’ financial safety net and AustralianSuper uses its size to negotiate discounted bulk insurance rates to offer affordable cover,” it says.

Members who find themselves transferred into another super fund will want to know what’s in store for them and how their insurance is affected.

Best-interest requirement

Trustees conducting the merger are obliged to act in the best interests of their members, and that includes life insurance.

“There’s an expectation that members will not be worse off as a result of the transfer,” says Mark Kachor, managing director of research firm DEXX&R.

“In a number of cases, if you have a predominantly blue-collar fund merging with one that is predominantly white-collar, then the acquiring fund may ask its insurer to revise the terms and conditions so they are broadly similar for the blue-collar people who are coming in.”

But there are no guarantees, says Kachor. “If the fund’s insurer doesn’t want to provide similar T&Cs, it may then approach the incoming fund’s existing insurer and ask if they’d like to continue providing insurance on the same T&Cs within their own fund.”