The Government has implemented all of its Putting Members’ Interest First superannuation reforms designed to protect members with low balances or inactive accounts.
The Treasury Laws Amendment (Putting Members’ Interests First) Bill was passed in the Parliament, with amendments, requiring that insurance be provided on an opt-in basis for low balance super fund members and to new members under the age of 25.
The new law complements members protection measures passed earlier this year.
One amendment exempts members who are working in dangerous occupations that require life insurance. However, these members will need to provide detailed occupation information to retain default insurance.
Super funds will then be required to make a decision about the occupational risk of each fund member under the age of 25 or with a low balance account before removing the insurance.
Industry Super Australia (ISA) is concerned that young workers may be left without insurance as funds will need to utilise a range of information to establish if a member is in a risky job. It says the Government should allow funds to obtain occupation data held by the tax office.
Despite this, ISA welcomes the amendment for those young workers that are not in a high-risk occupation.
ISA chief executive Bernie Dean says: “Insurance can be really a cost-effective way for workers in dangerous jobs who couldn’t otherwise afford it to get important coverage, but at the same time we don’t want to see young people having their super balance eroded by unnecessary premiums.”
The second amendment pushes back the commencement date from 1 October to 1 April next year.
Financial Services Council chief executive Sally Loane says: “These changes will ensure that super funds have additional time to engage with their members about the changes, and that consumers will have time to make informed decisions about their insurance needs.”
The Association of Superannuation Funds of Australia (AFSA) also agrees with the new start date as it will allow more time for funds to implement the necessary system changes and update their disclosure material.
AFSA deputy chief executive Glen McCrea says: “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.”
The bill mandates that default cover can only be offered on an opt-in basis to members under age 25, and to those holding low-balance active accounts of at least $6000 to prevent the erosion of super caused by premiums.
Australian Super already implemented opt-in insurance for under 25s in October 2018. The reason for the early change was due to 19 per cent of Australian Super death benefits for under 25s were paid to financial dependants.
A law was already implemented from July 1 that introduced a cap of 3 per cent on fees charged by super funds on accounts with balances below $6000. Exit fees on all super funds have been banned.
All inactive accounts, with no activity for 16 months, will be transferred to the Australian Taxation Office. The ATO will expand its data matching process and reunite inactive accounts with the members’ active account, where possible. Insurance premiums will not be charged on these accounts.