All group life insurance will be offered on an opt-in basis for members under the age of 25 as part of new Federal Budget measures to prevent the erosion of superannuation balances by insurance premiums.
The Federal Treasurer, Scott Morrison, made the announcement as part of a wider package of superannuation reforms within the 2018 Federal Budget which include a ban on exit fees for all superannuation accounts and a cap on administration and investment fees for low balance accounts.
Commenting on the proposed changes, the Minister for Financial Services and Revenue, Kelly O’Dwyer said, “Australians should not be defaulted into insurance they cannot claim on, or which is significantly beyond what they need”.
Under the proposals, life insurance arrangements in superannuation would be changed so that opt-in provisions would apply to accounts of members under 25, accounts with a balance below $6,000 and for inactive accounts that have not received a contribution in 13 months and where the member has not elected to retain existing cover.
“Based on the most recent data, around 5 million individuals will have the opportunity to save an estimated $3 billion in insurance premiums by choosing to opt-in to this cover, rather than paying for it by default,” O’Dwyer said.
“…there are many other workers with significant needs who falsely believe they’re adequately covered through super when they are not…”
Listed life insurer, ClearView Wealth has supported the change but called for it to be extended to make life insurance in super optional for all workers.
ClearView Managing Director, Simon Swanson said the company would lobby for an end to the current opt-in system for life insurance inside superannuation since too many fund members assume they have adequate insurance cover when that is not the case.
“While some, such as young people, end up with cover they don’t need, there are many other workers with significant needs who falsely believe they’re adequately covered through super when they are not,” Swanson said.
“Australians should be encouraged to seek professional advice either via their super fund or a third party about the type and level of protection they need but the current opt-out model facilitates a set and forget approach that gives members a false sense of security,” he added.
The FSC, however, has claimed the move to opt-in arrangements for members under 25s may lead to some people missing out on life insurance.
FSC Chief Executive, Sally Loane said superannuation fund trustees will need to communicate the change to members to ensure those who need cover, particularly those in high risk occupations, continue to get it.
“Younger Australians impacted by this policy should think hard about what insurance they need and make sure they are covered appropriately,” Loane said, adding “This is an opportunity for super funds to start a conversation with their younger members about all aspects of their superannuation savings”.
The FSC said the proposal still needs ‘careful work’ to protect against unintended consequences and set appropriate transition arrangements despite the Treasury stating only a few weeks have been allocated to make the changes.
