The action included allegations former Westpac subsidiary BT Super invested members' superannuation funds through Westpac Life to gain fees for no service.
Law firm Slater and Gordon said BT prioritised Westpac Life's profits over its duty to seek the best returns for its members' retirement savings, leading to lower returns for clients.
Westpac sold BT Super to Mercer in May.
"Superannuation members trust their funds with their retirement savings and place their faith in them to protect their future," Slater and Gordon special counsel Nathan Rapoport said.
"We are pleased this settlement means that group members will be getting millions of dollars of compensation."
The settlement was reached on a "no admissions" basis and BT and Westpac Life deny any liability.
A Westpac spokesman confirmed the bank had agreed to settle the class action, which related to a former cash investment option of BT Super for Life.
The settlement still needs to be approved by the Federal Court.
The class action was filed in 2019 as part of the Slater and Gordon "Get Your Super Back Campaign", which came in the wake of a banking royal commission that exposed widespread problems in the financial sector.
The settlement comes barely a month after Commonwealth Bank, ANZ and Westpac settled another class action with Slater and Gordon for $126 million over consumer credit insurance (CCI) sold via their insurance subsidiaries.
The class action alleged the three banks' subsidiaries sold clients CCI they were ineligible for and in some cases had not consented to buying.
NAB settled for $49.5 million over its alleged CCI issues in 2019 and all of the big-four banks have since exited the life insurance market.
None of the banks nor their subsidiaries formally admitted wrongdoing in the cases.
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