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Insurance within superannuation – more thought required

Insurance within superannuation – more thought required

Richard Wilkins investigates areas of the Productivity Commission’s review into the superannuation system that deal with default insurance coverage in superannuation.


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The release of the Productivity Commission’s review into the superannuation system again saw the area of default insurance coverage in superannuation brought into the spotlight. Finding that paying for an unsuitable insurance policy can reduce a typical member’s balance by $85,000 or 14 percent by retirement, the final report essentially reiterated suggestions contained in the interim report of May 2018 and recommended that:

  • Insurance in superannuation be opt-in for members under 25 years of age (such insurance is currently opt-out)
  • Trustees be required to cease all insurance coverage on accounts where no contributions have been made for the past 13 months (unless the member provides express permission that the cover is to be retained)
  • Superannuation accounts with balances under $6,000 should be automatically consolidated (reducing fees as well as avoiding multiple insurance policies)

The recommendations were good news for Treasurer Josh Frydenberg, who noted that “the Commission endorses many of the Government’s superannuation reforms that are currently before Parliament”. Indeed, the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018, which has been before the Senate since June 2018 contains legislation, amongst others, to give effect to the above recommendations.

Why haven’t the proposals already been legislated?

Despite giving qualified support, Australian Labor Party (ALP) senators and others have a number of concerns, including:

  • Whether the proposed age threshold of 25 years (below which insurance coverage would be opt-in) was too high for those working in dangerous industries and people with dependants and/or liabilities as they may miss out on coverage they need 
  • The strict 13 month definition of inactivity possibly causing detriment to certain groups such as intermittent workers and those taking paid parental leave
  • The haste of the proposed start date of 1 July 2019 and whether this was enough time for trustees to implement the required changes
  • A likely increase in the cost of insurance premiums (although this is arguably only fair given that younger members, who are less likely to claim, subsidise other members) – see our earlier report “Insurance in superannuation: The impacts and unintended consequences of the proposed Federal Budget changes”.

The ALP also stated that they would reserve their position until after the outcomes of the Senate Economics Committee inquiry into the Bill were released.

The Committee has since recommended the Bill be passed by the Senate. Despite this, it now appears political gridlock will continue as we await the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry which may call for more overarching reform. With very few sitting days before the next election, meaningful changes may not be legislated for some time.

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