- On 24/07/2018
- insurance, submission, superannuation
The Senate Economics Legislation Committee is reviewing the Government’s legislation implementing the Protecting Your Super Package (announced at the Budget in May). Rice Warner was asked to provide additional information as part of this review.
Rice Warner had already made a submission as part of the Government’s initial call for views as part of the release of the package. As we indicated earlier this year, we were generally supportive of the intent of the Government’s package. However, we noted that there would be significant unintended consequences from the proposed legislation.
The major issue we believe needs addressing is that of opt-in only cover for active members with balances under $6,000. We consider this has significant consequences for members, funds, insurers and administrators and we indicated to the Senate Economics Legislation Committee that this is not needed. This is because the majority of the members that will be required to opt-in in the longer term will be captured by the under 25 provisions. For members over 25, it is expected that their inactive accounts will be reunited with their active accounts, pushing most balances over $6,000. However, some members could find themselves without any cover in the period until the accounts are combined, which could be disastrous for them and their families should they die or become disabled during this time.
Another consequence of the proposed changes is that any member of a superannuation fund who has elected cover, even has been fully underwritten, needs to make a new election post 8 May 2018, to state that they wish to retain their cover. If they don’t do this and they become inactive at any future date, or their balance is less than $6,000 on 1 April 2018, then their cover will be switched off. These members may be unable to reinstate this cover, for example if their health has deteriorated since the cover was put in place.
In our submission to the Senate review, we again reiterated that the proposed timing for implementation would prove difficult for funds to implement and therefore recommended the deadlines be extended. Even if the deadlines are extended, it is important for funds to commence planning for the changes. We have been working with funds and service providers to understand the impact on members and costs and to determine whether the insured benefit design is appropriate considering the proposed legislative changes and requirements of the Insurance in Superannuation Code of Practice.
Whilst we have provided the Government with recommendations to address issues with the Protecting Your Super Package, it is worth considering the original policy problem that the Government’s package intended to address. If the aim is to reduce erosion of superannuation balances via insurance premiums, should superannuation be the vehicle to hold these insurance policies in the first place?
The recently released Productivity Commission report highlighted that the inclusion of insurance in superannuation dates back many decades and that the current policy setting are largely a function of history. Under SIS legislation, the provision of death benefits is a core purpose of superannuation whilst the provision of disability benefits is an ancillary purpose. Conversely, the legislated objective of superannuation which is currently stalled in the Senate, does not mention the provision of insurance in the subsidiary objectives of superannuation.
The Productivity Commission has recommended a further review of insurance in superannuation following its current review into the superannuation industry. Insurance in superannuation does an excellent job of providing a minimum level of cover at a reasonable price to a large portion of the population.
If, following a comprehensive review of the policy merits, superannuation is deemed to be the appropriate vehicle to hold this insurance, this could be enshrined in legislation by including this as a subsidiary in the objective of superannuation legislation.