Throwing people on smoker policies earned seven superannuation companies millions: ASIC

Throwing people on smoker policies earned seven superannuation companies millions: ASIC

Seven superannuation companies have been caught overcharging customers by defaulting them onto health policies for smokers, leading to a multimillion dollar windfall before it caught the attention of the corporate regulator. 

The Australian Securities and Investment Commission (ASIC) spent about three years working with seven superannuation companies to secure refunds for more than 156,000 people who were incorrectly defaulted to more expensive policies for smokers. 

Remediation plans are only in place for a small percentage of people who have been overcharged, about 5000, and they’ll be paid approximately $3.6 million in refunds and compensation. 

“Insurance in super is complex,” Danielle Press said, a commissioner at ASIC. 

“Many Australians may not realise that default classifications can impact the price of their cover and therefore, reduce their retirement benefits.

“In light of the low smoking rate, merely providing disclosure and putting the onus on members to act is not enough to support good member outcomes.”

A single superannuation company accounts for the majority of people incorrectly charged. IOOF, parent company of IOOF Investment and OnePath Custodians, defaulted a combined total of 146,350 people onto smoker policies. 

They do not have a remediation plan in place as of the time of writing, according to ASIC. Nor did they respond to RateCity’s questions regarding refund plans and their estimated cost.

The remaining six superannuation funds — which included Colonial First State, Netwealth, and AMP, among others — incorrectly charged from dozens to 4000 members each. 

It is unclear how long the practice of defaulting members onto more expensive smoker policies went on for, but according to ASIC, at least one of the implicated super funds, AMP, participated before stopping in 2006.

All of the companies have since stopped defaulting people onto smoker policies, and four of them have either started or completely finished remediation programs, ASIC said.

The misconduct should act as a reminder for people to check and stay on top of their superannuation policies, Sally Tindall said, research director for RateCity.

"This investigation serves as a good reminder to people to check over their insurance policies,” she said. 
 
“So often we just tick the box and assume we’ve got the right cover. But it’s worth that extra five or ten minutes to check the details, especially when the insurance premiums are coming out of people’s retirement funds.”

Related

What is superannuation?

Coronavirus-affected Aussies allowed more time to dip into super

Second-time superannuation dippers surge to more than a million

 

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Learn more about superannuation

How can I keep track of my superannuation?

Most funds will allow you to access your superannuation account online. Another option is to manage your superannuation through myGov, which is a government portal through which you can access a range of services, including Medicare, Centrelink, aged care and child support.

What is a superannuation fund?

A superannuation fund is an institution that is legally allowed to hold and invest your superannuation. There are more than 200 different superannuation funds in Australia. They come in five different types:

  • Retail funds
  • Industry funds
  • Public sector funds
  • Corporate funds
  • Self-managed super funds

Retail funds are usually run by banks or investment companies.

Industry funds were originally designed for workers from a particular industry, but are now open to anyone.

Public sector funds were originally designed for people working for federal or state government departments. Most are still reserved for government employees.

Corporate funds are arranged by employers for their employees.

Self-managed super funds are private superannuation funds that allow people to directly invest their money.

What happens to my superannuation when I change jobs?

You can keep your superannuation fund for as long as you like, so nothing happens when you change jobs. Please note that some superannuation funds have special features for people who work with certain employers, so these features may no longer be available if you change jobs.

What will the superannuation fund do with my money?

Your money will be invested in an investment option of your choosing.

How does superannuation affect the age pension?

Most Australians who are of retirement age can qualify for the age pension. However, depending on the size of your assets and post-retirement income, you might be entitled to only a reduced pension. In some instances, you might not be entitled to any pension payments.

Do I have to pay myself superannuation if I'm self-employed?

No, self-employed workers don’t have to pay themselves superannuation. However, if you do pay yourself superannuation, you will probably be able to claim a tax deduction.

What is superannuation?

Superannuation is money set aside for your retirement. This money is automatically paid into your superannuation fund by your employer.

Can I carry on a business in an SMSF?

SMSFs are allowed to carry on a business under two conditions.

First, this must be permitted under the trust deed.

Second, the sole purpose of the business must be to earn retirement benefits.

What are the risks and challenges of an SMSF?

  • SMSFs have high set-up and running costs
  • They come with complicated compliance obligations
  • It takes a lot of time to research investment options
  • It can be difficult to make such big financial decisions

How much is superannuation in Australia?

Superannuation in Australia is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

Am I entitled to superannuation if I'm not an Australian citizen?

Yes, permanent and temporary residents are entitled to superannuation.

What are the age pension's residence rules?

On the day you claim the age pension, you must be in Australia and you must have been an Australian resident for at least 10 years (with no break in your stay for at least five of those years). The following exceptions apply:

  • You’re exempt from the 10-year rule if you’re a refugee or former refugee
  • You’re exempt from the 10-year rule if you’re getting Partner Allowance, Widow Allowance or Widow B pension
  • You can claim the age pension with only two years of residency if you’re a woman whose partner died while you were both Australian residents
  • You might be able to claim the age pension if you’ve lived or worked in a country that has a social security agreement with Australia

Am I entitled to superannuation if I'm a contractor?

As a contractor, you’re entitled to superannuation if:

  • The contract is mainly for your labour
  • You’re over 18 and earn more than $450 before tax in a calendar month
  • You’re under 18, you work more than 30 hours per week and you earn more than $450 before tax in a calendar month

Please note that you’re entitled to superannuation even if you have an Australian business number (ABN).

How do you create a superannuation account?

Before you create a superannuation account, you’ll need to check if you’re allowed to choose your own fund. Most Australians can, but this option doesn’t apply to some workers who are covered by industrial agreements or who are members of defined benefits funds.

Assuming you are able to choose your own fund, the next step should be research, because there are more than 200 different superannuation funds in Australia.

Once you’ve decided on your preferred superannuation fund, head to that provider’s website, where you should be able to fill in an online application or download the appropriate forms. You’ll need your tax file number (assuming you don’t want to be charged a higher tax rate), your contact details and your employer’s details (if you’re employed).