The Government’s opt-in changes to insurance in superannuation, in the Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019, have passed the Parliament.
The soon-to-be Act will make insurance in superannuation opt-in for many young people and for low balance super accounts.
Under the changes super funds will be prevented from providing insurance to new members under age 25 on an opt-out basis – as it often is – and to existing or new accounts with balances under $6,000.
A statement by Treasurer Josh Frydenberg said that the changes ” means the hard-earned retirement savings of millions of Australians will be protected from undue erosion through inappropriate insurance arrangements”.
“Importantly, these changes will not prevent anyone who wants insurance within superannuation from being able to obtain it: low balance account holders and young members will still be able to opt in if they want to take out insurance.”
“The Morrison Government is putting the interests of members, not insurers or funds, first.”
‘Dangerous’ occupations can keep opt-out insurance
The Bill was amended so that super funds could exempt people in ‘dangerous’ occupations, and to delay the start dates of the measures.
Super fund trustees will be able to elect to keep insurance opt-out for members working in the emergency services, or workers in the top 20% of riskiest occupations.
Labor was concerned that there were “real impediments” to super funds getting the information required to implement an exception for high risk occupations. Labor’s amendment, which failed, would have created an exception for industries. Labor Senators called it “clunky” for super funds to have to write to members asking about their occupation, as proposed by Government Senators.
The precise changes excepting high risk occupations were not considered in either of the Senate inquires into the broader measures, as they were introduced into the Bill by amendment after the inquiries. Though issues for people in high risk occupations were raised in many submissions.
Start dates for opt-in insurance pushed back
The application of the insurance changes was delayed to 1 April 2020 (from 1 October 2019) and the obligation to notify members until 1 December 2019 (from 1 August 2019).
Super funds would also, under the original draft of the Bill, have been required to conduct a ‘stocktake’ of members on 1 July 2019 – which was before the Bill was introduced to Parliament. This has been moved to 1 November 2019.
A Senate inquiry into the Bill was told that the time frames for implementation of the changes in the original version of the Bill was “not feasible”, and the inquiry recommended delays. APRA has said 6 months for implementation was the minimum, with 12 months preferable.
After the Bill was amended in, and passed by, the Senate it returned to the House for a vote on the amendments and now awaits Royal Assent.
Dangerous jobs exception “not realistic”
Industry Super Australia (ISA) has a mixed reaction to the passage of the legislation, as it would prevent young people having their super balances eroded by insurance premiums, but also means that young people working dangerous jobs risked losing “essential default cover”.
The organisation warned that super funds may not be able to implement the dangerous occupation exception because it requires detailed data on the jobs of members.
“This is not realistic and to work in practice funds will need to utilise a range of information to establish if a member is in a risky job,” said ISA.
“To work effectively and efficiently the Government should allow funds to obtain occupation data held by the ATO and make use of contributing employers’ business type. Guidance will be needed from APRA to make these provisions workable.”
Industry Super Australia welcomed the “more realistic implementation dates”, which were also welcomed by the Association of Superannuation Funds of Australia (ASFA) – saying it would be good for consumers by allowing more time to maintain their insurance in super.
“We appreciate the Government, Opposition and crossbench Senators adopting a pragmatic approach that will help consumers make better decisions in relation to their insurance,” said ASFA Deputy CEO Glen McCrea.
“There is now a better opportunity for superannuation funds to reach consumers and help them understand what the changes mean for them. Consumers will have more time to consider their insurance needs and determine whether their insurance should be maintained.”
“More time for funds should enable more communications to members, smooth the response rate and reduce wait times to contact centres as we approach the commencement date.”
Communication with super fund members after the changes is also a concern for Super Consumers Australia, which is associated with CHOICE.
Acting Director Xavier O’Halloran said that, with the passage of the legislation, “today is a great day for superannuation consumers”.
“Millions will flow back into the hands of people rather than being eaten away by insurance premiums for policies people didn’t want, need, or even know they had.”
“It is an end to the blunt one-size fits all approach to insurance in super.”
“Funds will now have to ensure they understand much more about their members so that they can provide appropriate insurance.”
O’Halloran said that Super Consumers Australia would be paying closs attention to how super fund communicate the changes to membes.
“We know that people have been left baffled by recent changes to insurance in super due to poor communications by the funds.”
“We are calling on all funds to do a much better job of communicating how insurance products might meet their members needs, not to scare them into taking up worthless cover.”
“Super Consumers Australia thanks the Federal Government and Senate crossbenchers for their decisive action to clean up one of the most harmful practices in the superannuation industry.”
$550 million raised for Budget
The Government estimates that the changes will raise $550.3 million for the Budget, over the four year forward estimates.
The compliance cost to industry is estimated to be $28.5 million a year, averaged over 10 years.
The whole Protecting Your Superannuation package was originally estimated raise $1.75 billion over the forward estimates, in underlying cash balance terms, or $850 million in fiscal balance terms.
These changes were announced in the 2018/19 Budget. They were included in another Bill – Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 – but were stripped out in a deal between the Government and the Greens.
The Greens wanted to keep default insurance in super, concerned that the changes could mean people under age 25 being subject to individual underwriting, meaning people seeking to opt back in having to pay more for life insurance.
The Greens proposed, if default insurance in super was changed, that life insurance for those excluded by the changes be nationalised.
This article has been updated with additional comments since publication. An earlier version of this article incorrectly stated the estimated Budget impact of the changes.
More to come.