Aussies miss out on $25k due to confusing super products

CHOICE makes number of recommendations before a parliamentary inquiry.

More than 40% of Australians have a secondary, redundant superannuation account costing up to $1.96 billion per year, reveals research conducted by CHOICE.

Consumers could retire with an extra $25,000 by consolidating their superannuation accounts, and earn an extra $1600 a year in retirement income, if only superannuation products were easier to understand and manage, says Alan Kirkland, the chief executive of CHOICE.

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Choice CEO Alan Kirkland at the Federal Parliament inquiry into life insurance.

"For many Australians dealing with their super falls into the too hard basket. It's confusing, complicated and if you are unfortunate enough to be paying the monthly fees on one of the 14 million duplicate accounts, it can be very costly."

CHOICE made a number of recommendations today before a Federal Parliamentary Inquiry in Sydney into the life insurance industry.

The recommendations focus on making superannuation simpler to understand, easier to consolidate and enforceable by the industry regulator.

Paying two times the fees

Making it easier to consolidate superannuation would prevent Australians from spending two times as much on fees and insurance, says Xavier O'Halloran, policy and campaigns advisor at CHOICE.

"Most people are getting sold a new superannuation product every time they change jobs and they end up with duplicate accounts. That means duplicate fees," says O'Halloran."The end result is they're eroding their retirement savings."

"There should be a little tick box when you sign up to a new fund. It would say: 'Would you like the fund to consolidate all of your other super accounts?' Then the new super fund could go away and do that for you."

Costing young Australians

Life insurance and disability insurance is bundled into superannuation packages. Younger Australians can find themselves paying more than they should for these policies, says O'Halloran.

"You basically default into an insurance product at the moment as part of your superannuation and they don't necessarily match your individual needs. Particularly for young people we're concerned.

"In some cases, we've seen a default of death cover of up to $200,000 and for a young person, who doesn't have a home loan, doesn't have any dependents, a partner or children, that's simply far too much."

Changes needed

Among CHOICE's recommendations is the introduction of a key fact sheet; a brief document provided by super funds simply outlining the details of a life insurance policy.

But arguably the most significant recommendation involves the drafting of an industry code that will be enforceable by the Australian Securities and Investment Commission (ASIC).

"We would like industry to make sure the codes are up to a high enough standard that ASIC will be willing to register it," says O'Halloran.

"If a fund or insurer breaches the consumer protections we need to make sure someone's actually going to do something about it."