The “protecting your super” bill was passed by the Senate, after the Coalition agreed to amendments made to the bill by the Australian Greens, including a major change to a part of the bill that related to insurance arrangements in super.  

The amendments

Part of the bill was intended to change life insurance, income protection or total and permanent disability insurance in super to an opt-in basis for those under the age of 25, those with balances below $6,000 or accounts that have not received a contribution for 13 months and are inactive.

The Greens, however, said that insurance should continue to be offered on an opt-out basis for all members.

Greens Senator Peter Whish-Wilson said that the Greens did not agree with the premise that people under 25 do not need life cover and are less likely to become permanently sick or injured.

“Those under 25 who would most benefit from life insurance are likely to be the most vulnerable, have kids younger or be lower down the socioeconomic spectrum in Australia,” Mr Whish-Wilson said.

“Blue-collar unions and associated industry super funds strongly support insurance being retained as opt-out for default funds.”

He said that a blue-collar worker is more likely to be “running a ladder up the side of a house on the weekend”, and therefore, this cohort of policyholders are at a higher risk of injury and death.

The Greens also had issues with the definition of “inactivity” applying to schedules 2 and 3.

“The main issue is that defining it at 13 months would inadvertently capture parents on parental leave. The other issue is that people might engage with their superannuation fund, for example, by changing their policy settings, yet still be considered inactive,” Mr Whish-Wilson said.

A positive move?

Verante director Liam Shorte said that the decision not to proceed with the changes to insurance cover that were originally contained in the bill may be a positive given the high rates of death and total and permanent disability among males under the age of 25.

Mr Shorte said that where an adult child becomes disabled without any insurance cover, this can destroy the retirement savings of the parents who are usually left to care for them.

“It is often the biggest risk to a well-planned retirement,” he said.

Mr Shorte also noted that, often, parents will be willing to stump up the annual contribution to help fund the insurance fees taken from the fund.

The Association of Superannuation Funds of Australia also supported the scrapping of the insurance changes for young members, with ASFA chief executive Martin Fahy stating that it would have had an impact across the board, particularly on those in high-risk occupations and for young people with dependents.

“There is clear evidence that insurance in superannuation is one of the most cost and tax-effective options to provide protection, particularly for the young and low-income earners,” Mr Fahy said.

“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.”

Industry Super Australia, on the other hand, said that it was disappointing that explicit changes intended to protect young and low-balance members from unnecessary insurance were completely dropped from the final bill.

“While additional safeguards were definitely required, removing the provisions completely was not necessary,” it said.

‘Rorts and rip-offs’

When first introducing the bill in June last year, former Minister for Revenue and Financial Services Kelly O’Dwyer said that the raft of measures would help to combat the undue erosion of superannuation balances through excessive fees and inappropriate insurance arrangements and “protect the hard-earned superannuation savings of millions of Australians from rorts and rip-offs”.

Ms O’Dwyer previously said that the changes to insurance in super that originally formed part of the bill would better target default insurance cover and prevent inappropriate erosion of retirement savings by insurance premiums for cover [that] members do not know they have, that goes beyond what they need or which they cannot even claim on.