To backtrack a little, the government recently stopped entry to its existing MilitarySuper (known to most as MSBS) fund. From July 1, new personnel are instead offered membership of the new ADF super fund, or can opt to have their employer contribute to a super fund of their choice.

But for new defence employees unable to join, there's little point in highlighting what additional benefits MSBS members get in return for their minimum 5 per cent employee contribution.

Indeed, the defence force generally is fortunate in that new entry to the MSBS was not stopped until now. It's been 11 years since the public service PSS, which went before it, was closed off. The large prospective reduction in the unfunded super liability resulting from ending new entry to the MSBS highlights the benefits for existing defined benefit fund members from not voluntarily switching to the newer fund.

For a number of reasons, but predominantly to reduce costs, employers including the Commonwealth government itself have been narrowing the scope and generosity of their super schemes. In previous years many employees could be confident even without studying the fine print that their super included comprehensive death and disability insurance and offered benefits related to their final salaries rather than investment returns.

The trend now is to place the responsibility for choosing insurance coverage and managing investment risks on fund members. New Commonwealth and defence employees still receive employer contributions negotiated at the time of closure of entry to the defined benefit funds significantly higher than the minimum compulsory employer contributions.

Despite this, as in the private sector new employees are required to make decisions about their insurance coverage and ensure the chosen investment risk profiles are appropriate for their personal or family situations. Unlike defined benefit fund members where the key decisions are about ensuring member contributions maximise the employer contributions, the ultimate payouts to accumulation fund members depend upon decisions they make about investment options and insurance protection.

Unfortunately especially at younger ages, the fact that superannuation benefits other than death and disability payouts are untouchable until at least age 60 results in important decisions often being left to the fund trustees via the default options offered by all funds. Relying on default options can and often does result in inadequate insurance coverage to protect against possible contingencies, even though purchasing insurance protection in superannuation is the most tax effective way of covering these risks.

The need for insurance coverage is greater the smaller the fund account balance, while at older ages when account balances have increased, actively managing investment risks and choices assumes greater importance. While some default funds vary the risk profile as the member ages, many more are biased towards higher risk investment options which are more suitable for members with longer investment time horizons.

Daryl Dixon is the executive chairman of Dixon Advisory
comments@dixon.com.au