Moving group life insurance cover to an opt-in basis for people under 25 would do little to address superannuation balance erosion and would cost the Australia economy around $2.4 billion per year, according to research released by AIA Australia.
The life insurer released the research after the Federal Government announced in the recent Budget that it would shift all life insurance inside superannuation to an opt-in basis for people aged under 25, with low account balances or with inactive superannuation funds (see: Group Life to Become Opt-In for All Younger Members).
AIA Australia stated it had commissioned research from Rice Warner which found the average increase in an individual’s retirement balance from the opt-in arrangements would only be $1,400, or 0.27 per cent of a $528,300 retirement balance, over the course of their working life.
“AIA considers this to be inadequate when considering that life insurance claims and benefit payments for under 25s are growing each year, and that the proposed reforms would be offset by the potentially devastating physical and social impacts a member would experience in the event of a serious injury or illness,” the insurer stated.
The research also found the wider cost to the Federal Government and Australian economy would be $2.46 billion per year stemming mainly from lost economic spending due to reduced insurance payments, as well as increased social security spending due to reduced insurance claim payments.
“This is what the government should be focused on, removing cover only in instances where insurance is not required”
AIA Australia highlighted the findings from a recent Productivity Commission into the efficiency of superannuation which found that duplicate accounts, and the associated life insurance premiums, had a larger impact on fund balances with the annual cost of excess insurance premiums totalling $1.9 billion each year.
AIA Australia and New Zealand Chief Executive, Damien Mu said the opt-in arrangements provided minimal financial gain for the 1.4 million superannuation funds members under 25 and the Government would achieve better outcomes for superannuation balances by addressing the issue of multiple accounts.
“By adopting new measures on inactive accounts, the government will achieve two-thirds of its targeted cost savings for members, while addressing the important issue of duplicate accounts. This is what the government should be focused on, removing cover only in instances where insurance is not required,” Mu said.
“They should not remove appropriate levels of protection or coverage for active, working Australians, nor should they discriminate against active members due to age or account balances, as these individuals are at risk, and they do have insurance needs as with other member cohorts,” he added.
“It is simply not the case that young people don’t require cover, or that they work exclusively in casual or part-time employment. More than 600,000 young workers under 25 do so on a full-time basis, which is 42 per cent of the under 25 working population. Of those, almost half are full-time workers in blue collar jobs,” Mu said.
