Need to know
- The reforms will see your super 'stapled' to you as you move from job to job
- The change will mean fewer Australians pay fees and insurance premiums on unwanted duplicate accounts
- The new rules have shone a spotlight on insurance in super. Super Consumers Australia suggests contacting your fund if you're not sure what cover you have
Want to avoid having your retirement income eroded by unnecessary fees? If so, then 'stapling' in super could save you a lot of money.
From 1 November 2021, your super fund will be 'stapled' to you when you move to a new job.
Fewer unwanted multiple accounts
'Stapling' means keeping the same super account as you move from job to job.
Before stapling, if you started working for a new employer and didn't nominate a super fund for them to pay your super contributions into, they'd open a new account for you in their default super fund. This system led to millions of duplicate accounts – and was a colossal waste of money.
Saving $2.8 billion
Treasury has estimated that the new stapling arrangements will save Australians about $2.8 billion over the next 10 years as fewer people will be paying fees and insurance premiums to multiple super funds.
"This is a change that helps people stay on top of their super," says Xavier O'Halloran, director of Super Consumers Australia. "Multiple super accounts are a drain on your retirement income."
Remember, if you want to change super funds when you change jobs (or at any other time), in most cases you still can.
But the stapling change simply means that, unless you actively choose to open a new super account with your new employer, the default is that you'll stay with the one fund (your current one) if you don't take any action.
Naomi and Natalie's stories: Multiple super funds
Many Australians unintentionally accumulated multiple super funds in the old system.
CHOICE reader Naomi is a manager at a mental-health-care provider and worked in a number of hospitality and retail roles in her 20s. As a result, she ended up with multiple super accounts as she moved from job to job.
"I just went with whatever fund the employer had and didn't think too much about it," she says.
Fees (and possibly unwanted insurance premiums) chipped away some of this retirement income.
When I finally went to check on one of the funds, it had gone down to zeroNaomi, CHOICE reader
"When I finally went to check on one of the funds, it had gone down to zero," says Naomi.
CHOICE community member Natalie also found herself in two different default funds as she'd worked as both a wool classer and, amazingly, as a secretary to one Humphrey B. Bear.
"I remember reading somewhere that I could amalgamate the two to save money on fees, so that is what I did," she says.
When the new stapling system comes in, workers including Naomi and Natalie, will keep a single super account with their original fund unless they opt to start a new account if and when they switch jobs.
Stapling and performance of funds
The industry lobby group Australian Institute of Superannuation Trustees has taken a less positive view of the reforms. It claims that stapling could end up costing members because those in a dud fund will stay there, instead of potentially moving into a better fund when they change jobs.
But O'Halloran dismisses this argument. "The legislation is all geared towards improving performance in these dud funds," he says.
Arguments from the industry that people would be stapled to a dud fund for life are pure fantasyXavier O'Halloran, Super Consumers Australia
"Arguments from the industry that people would be stapled to a dud fund for life are pure fantasy. Besides, the super system prior to these reforms did nothing to make sure people would be defaulted into better performing funds."
Once the new changes come in, if your fund fails the performance test (also coming in September), they'll have to write to you to say they've been underperforming and refer you to the new super fund comparison tool.
Stapling and insurance in super
Stapling will also mean far fewer Australians paying for insurance across multiple funds. Paying for a duplicate insurance policy can cost you more than $50,000 over your working life.
These insurance policies are sometimes written so you can only claim on one, meaning the insurance is essentially junk if you have multiple accounts.
Another criticism of stapling is that you may get stapled to a fund with insurance that isn't right for you.
This could happen if, for instance, your first job is in a relatively low-risk environment, such as an office or a shop, but you then move into a more dangerous job (construction worker, for instance) that's no longer covered by your first fund.
Nor is all the insurance that super funds offer created equal – a review found that the quality of default insurance varies from fund to fund, and that cost isn't a reliable indicator of quality.
Wider insurance problems
O'Halloran says there are broader ongoing problems with insurance in super that need fixing.
"Currently, some funds make it much harder to claim if you are working part time, are unemployed, work in certain occupations or are older," he says.
"Yet they're still happy to charge you full price for this low-quality cover. This is unfair, and we've called for a broader review of insurance in super to resolve these issues."
We've spoken to legal experts who can't clearly determine what a policy actually meansXavier O'Halloran, Super Consumers Australia
Super Consumers Australia has contacted funds that have these terms in their policies to ask if they'll remove them.
Treasury will also review stapling to see if these harsher tests for some workers (known as 'occupational exclusions') are still a problem.
"Funds don't have to wait for the review – we're calling on them to act now to get rid of this junk insurance," says O'Halloran.
How can I tell if the insurance in my super is right for me?
Regardless of the changes, it's always a good idea to make sure the insurance you get through your super is right for you.
What you want to look out for are clauses in the fine print of your policy that could make it much harder for you to claim based on the type of work you do, how many hours you work and/or how old you are.
But working out if the insurance you're paying for through your super has one of these terms is very difficult.
"We've spoken to legal experts who can't clearly determine what a policy actually means," says O'Halloran.
If you're unclear on whether your super fund will make it harder for you to claim, we suggest sending a message to your fund. You can use the following template:
"I have an enquiry about the default insurance I get through my super.
Can you explain how my ability to make a claim may be impacted by the following factors:
- my occupation as a ___________
- the type of work I do, which includes the following risks _____(e.g. working above certain heights)
- my age, which is _______
- the fact that I've been out of paid employment for _____ months
- the fact that I work an average of _____ hours per week
- any other factors which may impact my ability to claim."
(Delete any lines that aren't relevant)
Note that if you've taken out extra insurance through your super, different tests and/or exclusions may apply on your default cover and extra cover – ask your fund if you're unclear on this point.
In the long term, says O'Halloran, all funds should offer insurance that doesn't create junk cover for certain jobs.
In the meantime, contact your fund so you can get some peace of mind that the cover you're paying for is right for you.
This content was produced by Super Consumers Australia which is an independent, nonprofit consumer organisation partnering with CHOICE to advance and protect the interests of people in the Australian superannuation system.