Reforms to superannuation insurance trigger mixed views
While some groups in the superannuation industry support the government’s proposed changes for superannuation insurance for younger members, others are concerned the amendments are based on false assumptions or that the time frames are too short.
On 4 July 2019, the Senate referred the provisions of the Treasury Laws Amendment (Putting Members' Interests First) Bill 2019 to the Economics Legislation Committee for inquiry and report by 23 July 2019.
The bill amends the Superannuation Industry (Supervision) Act 1993 to prevent trustees from providing insurance on an opt-out basis to members who are under 25 years old and begin to hold a new product on or after 1 October 2019, and to members who hold products with balances below $6,000.
Concerns with time frames
In a submission to the Senate inquiry, Chartered Accountants Australia and New Zealand said while overall it was supportive of the policy, it stated that it had significant concerns about the short time frames.
The submission stated that fund trustees, administrators and members might not have time to adequately adjust to the policy, especially the time frame in which to make necessary adjustments to fund governance rules; disclosure documents, administrative systems and procedures, insurance contracts; conduct staff training and embark upon often longer than normal conversations with fund members.
“We are concerned about the legislation’s complex terms which will add to administration and system costs and will make the already complex super system even harder for ordinary consumers to understand,” the submission said.
While CA ANZ said the policies should be implemented as soon as practicable, it said October 2019 was an insufficient time frame for the amendments to be implemented.
“It is true that this policy was first announced in 2018–19 federal budget and amending legislation introduced into Parliament in June 2018. Technically, super funds have had sufficient time to determine the impact of these measures,” it noted.
“However, the reality is that this policy remains unlegislated and it may not complete its passage through Parliament before October 2019. These changes require reasonably substantial and careful adjustments to the operation of many super funds. It would be imprudent for a super fund trustee to devote significant resources to such a measure which may never have the force of the law.”
Australian Super in its submission also agreed that the implementation time was too short and would lead to members not having adequate time to make informed choices.
Ensuring insurance in super is appropriate
While Australian Super said it agrees with insurance cover not being provided for under 25 year olds or inactive account balances below $6,000, other than on an opt-in basis, it opposes insurance cover not being provided for active account balances under $6,000.
“We believe this insurance cover should be offered on an “opt-out” basis for these members because analysis of our membership shows that 73 per cent of these members are aged between 25 and 55, and the insurance cover is needed and affordable because they are likely to have financial commitments and dependents,” it said.
“All our positions are consistent with the Productivity Commission recommendations. We support the principles of Members First [bill] but believe the proposed legislation has gone too far in relation to removing insurance for active account balances under $6,000.”
The Productivity Commission, the submission said, recommended insurance not be provided for under 25s and inactive accounts, but it made no such recommendation in relation to active accounts under $6,000.
“We believe that active contributions into a superannuation account are a good indicator of where insurance is likely to be held, particularly following the welcome reforms implemented by Protecting Your Super bill,” it said.
Law firm Maurice Blackburn, in its submission, agreed that there is a strong argument for making death cover opt-in, because a significant majority of under 25s are not at immediate risk of death, and are less likely to have financial dependents or mortgages.
“Accordingly, death cover is not well targeted as a default insurance product for under 25 year olds,” it said.
However, the law firm stated that those assumptions couldn’t be made for insurances against Total and Permanent Disability (TPD).
“We have acted for hundreds of under 25 year olds who have suffered disability, injury or chronic illness leading to an incapacity to work,” it said.
“Whilst age is a reasonable predictor for the likelihood of chronic illness, it is not a good predictor for the likelihood of suffering injury. It is incorrect to conclude that those under the age of 25 should have less insurance coverage on the basis of reduced risk of injury.”
The submission stated that empirical data from Safe Work Australia found that the frequency for rate of injury in the 15–24 years age group was nearly double that of some of the other age groups.
“In terms of specific occupations, the highest frequency of injury was recorded by workers in the 15–24 years age group working as community and personal service workers,” it said.
“It is important to note that younger people who suffer sickness, injury or chronic illness will have longer-term exposure to the additional costs associated with disability, such as medical costs, home modifications etc. over a longer period of time.”
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.