KPMG's analysis into the costs and benefits of default group insurance in superannuation highlights that default group insurance in the superannuation system produces substantial benefits both for members and Australia as a whole, but there are some groups – low income earners, female workers and young people – who are adversely impacted by erosion of retirement benefits and specific measures are needed to help those people.
The objective of the report, which was prepared at the request of the Insurance in Superannuation Working Group (ISWG), is to evaluate the impact of potential changes to the current system to address current concerns that default group insurance may be unduly eroding retirement benefits.
Some of the possible modifications to the current system considered in the report include:
The report finds that there are many benefits to having default group insurance in superannuation including:
Our analysis indicates that the overall reduction to retirement benefits due to default insurance premiums is moderate - 6.2 percent on average. But the analysis also confirms that a relatively small proportion of members are disproportionately affected.
The report finds that income level is the key factor to retirement benefit erosion, more so than age or gender. For example, the impact on the retirement benefits for females aged 35-39 earning between $18,000 - $37,000 is 14 percent and may be higher for those earning less than $18,000.
The report outlines a range of possible alternatives in relation to how default group insurance within superannuation could be re-designed. These include:
© 2020 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Liability limited by a scheme approved under Professional Standards Legislation.
KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.