Individuals who are stapled to an underperforming super fund could miss out on hundreds of thousands of dollars in retirement according to industry bodies.
However, only 20 per cent of Australians know about the stapling changes introduced under the Your Future, Your Super legislation or what could happen if they don’t choose a fund, according to a survey conducted by UMR.
From 1 November, workers who change jobs will remain stapled to their existing super fund unless they choose otherwise.
Seventy per cent of survey respondents said they did not know what “stapling” meant in relation to their super.
“Being stuck to a dud fund could punch a huge hole in a person’s nest egg, and that is going to limit how much they enjoy life in retirement – people should make sure they are with a good fund,” said Bernie Dean, chief executive of Industry Super Australia (ISA).
“Given the risks to so many people’s livelihoods, the government needs to tighten up protections to make sure people are only stapled to the best funds that have passed the performance tests.”
Over one million Australians are expected to be stapled to a super fund that failed the government’s performance test according to ISA, and millions more could potentially be stapled to an untested super fund.
ISA estimates that being stapled to an underperformer could cost individuals as much as $230,000, while the Australian Institute of Superannuation Trustees (AIST) expects the cost to be even higher at $309,000.
According to AIST’s analysis, a 28-year-old earning $60,000 could retire at 67 with $717,000 in a high-performing fund versus $408,000 in an underperforming fund.
“While the new stapling rules don’t stop anyone from changing their super fund at any time, the reality is that millions of Australians “set and forget” their super, especially if they are years away from retirement,” said Eva Scheerlinck, CEO of the Australian Institute of Superannuation Trustees.
“We are very concerned that the new stapling rules will negatively impact disengaged or vulnerable Australians who may not realise they are in a persistently underperforming fund and remain stapled to that fund for life.”
AIST has also called on the government to ensure members can’t be stapled to underperforming funds and for all super products that are regulated by APRA to be performance tested.
Super Consumers Australia director Xavier O’Halloran welcomed the introduction of stapling but drew attention to occupational exclusions under default life insurance policies in super that can leave members without cover.
“Stopping the scourge of costly duplicate accounts will ultimately lead to bigger retirement savings for people, but without action from Parliament there is a risk some people will lose access to affordable default insurance cover in their super,” said Mr O’Halloran.
“At the moment, some funds are excluding people from safety net default cover if they work in certain occupations like as a bartender or labourer, putting them and their families at risk.”
The group is also calling on major super funds to dump junk insurance terms.
