According to AIA Australia research, switching to an opt-in insurance for superannuation members younger than 25 would result in an increase to balances upon retirement of $1,400. AIA argued this sum wasn’t worth the risk younger savers run by eschewing life insurance.
“This data raises legitimate questions as to the value of such reforms, where members will forgo valuable protections for a minimal financial gain in retirement. The cost savings are inadequate when considering the increased health and financial risks for under 25s,” AIA Australia and New Zealand CEO Damien Mu said.
“There are unintended consequences to these measures, including that premiums for remaining insured members will increase across their working life.”
The research, carried out by Rice Warner, found the $1,400 saving, based on a retirement balance of $529,700 once insurance fees are removed, equates to a 0.27 per cent improvement on the current average, $528,300.
AIA said it welcomed the Productivity Commission’s recent recommendations and the 2018-19 budget’s plans to mitigate balance erosion through addressing duplicate accounts.
However, it urged for reconsideration of plans and recommendations for insurance in super to be provided on an opt-in basis for those under 25.
“By adopting new measures on inactive accounts, the government will achieve two-thirds of its targeted cost savings for members, while addressing the important issue of duplicate accounts. This is what the government should be focused on, removing cover only in instances where insurance is not required,” Mr Mu said.
“They should not remove appropriate levels of protection or coverage for active, working Australians, nor should they discriminate against active members due to age or account balances, as these individuals are at risk, and they do have insurance needs as with other member cohorts.”
AIA said even members with low balances have insurance needs, pointing to the $75 million in claims paid by AIA to low-balance members in 2017.
“It is simply not the case that young people don’t require cover, or that they work exclusively in casual or part-time employment. More than 600,000 young workers under 25 do so on a full-time basis, which is 42 per cent of the under 25 working population. Of those, almost half are full-time workers in blue collar jobs,” Mr Mu continued.
He said young members will also be hit hardest by loss of future income as it is their largest asset, and warned that younger Australians are the least likely to actually choose to opt-in due to optimism and apathy.
“Forty per cent of young members are unaware what their superannuation balance is, let alone being in a position to consider their specific insurance needs and take active steps to opt-in,” Mr Mu said.
