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MTAA Super increases premiums amid merger

The $13 billion industry super fund MTAA Super, which is due to merge with Tasplan and become Spirit Super on 1 April 2021, has flagged that insurance premiums will be increasing for members.

MTAA said that the insurance costs for many members will increase due to government reforms, the impact of COVID-19 and increased claim numbers as well as changes to how the fund charges for cover.

Those aged under 30 or over 51 will pay less for death and TPD cover, but for all other members prices will increase.

For example, for a 45-year-old the cost if death and TPD cover will increase from $471.12 annually to $617.11. For a 35-year-old it will increase from $471.12 to $526.12.

The fund has already hiked death TPD premiums in February 2020, when members between the ages of 27 and 55 saw the cost per week of their cover increase from $7.47 to $9.06.

A spokesperson for MTAA told Financial Standard that some of the changes would have occurred even without the merger going through, as the fund was looking to remove cross-subsidisation by charging differing premiums based on age.

"Pricing of insurance for the merged fund is impacted by a number of factors. One of the largest impacts is due to the removal of age cross subsidisation within MTAA Super," the spokesperson said.

Historically within group insurance, cross subsidisation has been used to ensure insurance cover was cost effective across all members of the fund. In recent years there has been a push, supported by industry regulators such as ASIC and APRA, for superannuation funds to remove this cross subsidy.

"Regardless of the upcoming merger, MTAA Super were going to be removing the impact of cross subsidisation, so that the change in cost would better reflect the cost of providing insurance as members age. It is important to note that the cost in aggregate for the fund is remaining steady, however the changes (up or down) will be occurring at different ages," the spokesperson said.

There are also changes to income protection premiums for MTAA members.

From 1 April 2021, income protection costs will be calculated as an annual cost per $100 of Spirit Super members' monthly benefit amount, instead of a weekly cost in $250 units. Income protection with Spirit Super will be offered as a dollar benefit rather than in units of cover.

This will also mean a price rise for most members. For example, for a 32-year-old with an income protection monthly benefit of $12,000 the annual cost of income protection could increase from $158.50 to $340.80.

"There are also other impacts such as the indirect economic impacts of COVID-19 with the weaker economy and the impending end of Job keeper support, it is expected that there will be increased TPD and income protection claims," the MTAA spokesperson said, adding that other factors include a higher number of claims made recently.

"There is also an improvement to the TPD definition for MTAA Super which will see all members paid 100% of their benefit rather than the current two-part 80/20 definition."

Tasplan increased its income protection premiums too, in September 2020, putting them up by 7% ahead of the merger.

When the funds become Spirit Super in April, a new sustainable investment option will also be on offer to members. Around 75% of the option's portfolio will be invested in growth assets, and it will have a focus on assets with positive environmental and socially responsible characteristics.

The strategic asset allocations for most investment options will also change once the merger is completed.

A recent opinion poll from Financial Standard found that 85% of respondents think that group insurance premiums will continue to rise throughout 2021.

Read more: MTAA SuperSpirit SuperTasplanFinancial StandardAPRAASICHistorically
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