Younger Australians and those with low super balances will no longer be forced to take out life insurance as part of their superannuation.
The move is part of the Federal Government’s “Protecting Your Super” package, announced in the 2018 Federal Budget. It means members under the age of 25 and those with balances of less than $6000 will need to opt in to insurance cover rather than getting it automatically.
The government says the initiative is designed to protect super from being eroded by insurance premiums. It also includes banning exit fees as well as a 3% cap on administration and investment fees charged on superannuation accounts with balances of $6,000 or less.
Meanwhile, a mandatory consolidation program will require super funds to transfer inactive accounts with balances below $6,000 to the Australian Tax Office (ATO). The ATO will be given powers to reunite those accounts with the member’s active account where possible.
Mercer Financial Advice Leader, Richard Ebbs, says this year’s budget will encourage younger people to be more engaged with their super.
“There are proactive choices they have to make, particularly around insurance,” Ebbs says. “They also need to make choices around consolidating multiple super accounts or the ATO will make that decision for them.”
The Association of Superannuation Funds of Australia (ASFA) says opt-in insurance for young people could have unintended consequences, particularly on those in high risk occupations.
“Insurance in superannuation is one of the most cost and tax effective options to provide protection, particularly for the young and low income earners,” ASFA CEO, Dr Martin Fahy says. “Many young people have dependents and financial commitments so in the instance of a tragic event occurring, particularly disablement early in life, having insurance in place is extremely valuable.”
“Moving to an opt-in model puts insurance coverage at risk for this segment.”
The changes are proposed to apply from 1 July 2019.