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.”

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