Super reform: impact on insurance

The productivity commission has released a report into the superannuation industry and made 31 recommendations for reform. So how could they impact you? 

Coming in at 700 pages, the December 2018 Productivity Commission’s report does not make for light reading. So we’ve done the hard yards and had a look at what it could mean for you. 

The Productivity Commission, Superannuation: Assessing Efficiency and Competitiveness inquiry report starts with the premise that: “Australia’s super system needs to adapt to better meet the needs of a modern workforce and a growing pool of retirees. Structural flaws – unintended multiple accounts and entrenched underperformers – are harming millions of members, and regressively so”.i 

The report states that fixing these problems could benefit super fund members to the tune of $3.8 billion each year. For example, “a 55-year-old today could gain $79,000 by retirement,” and “a new job entrant today would have $533,000 more when they retire in 2064”. 

Now, whether or not any or all recommendations are adopted depends on the government of the day, here’s how they could impact insurance through super. 

Impact on insurance through super

The report identifies two key concerns with insurance through super. 

Firstly, it states that insurance through super can be “unsuitable”. For example, “because of exclusions on the basis of occupation” and “default insurance members cannot claim on”. 

The second key problem identified is: “Inconsistent standards and poor practices across the industry”, including “considerable evidence of trustees acting in ways that are inconsistent with members’ best interests”. 

In a bid to address these problems the report makes four recommendations (recommendations 15-18):

  • insurance through super should be opt-in for young and certain inactive members,
  • trustees of super funds should articulate and quantify the balance erosion trade-off determination they have made for their members,
  • the establishment of a binding and enforceable insurance code of conduct,
  • an independent inquiry into insurance in super.

Another notable change is that trustees are required to cease insurance where no contributions have been made for the past 13 months. 

What now?

Well, the recommendations are just that: recommendations. 

So it’s up to the government of the day – which could change following the election later this year – to decide which recommendations it will adopt in-full, partially or not at all. 

Your move

When it comes to the decision to purchase stand-alone life insurance or insurance through super, it’s up to the individual. 

For instance, the benefits of insurance through super can include being able to pay premiums with pre-tax earnings, preserving disposable income and – in some instances – accessing tax concessions. 

But the type of cover available through super may not be right for your circumstances, and in some circumstances the benefit amount, if a default amount, might not be enough for your situation. 

It’s also important to remember that life insurance through super can be impacted by certain changes in life. 

For more explanation on how the super reform may impact your insurance, please feel free to get in contact with us.

General Advice Warning –Past performance is not an indicator of future performance. The information provided in this article is general in nature and does not take into account your particular investment objectives, financial situation or insurance needs; we therefore recommend you seek advice tailored to your individual circumstances before making any specific decisions. Liberum Financial and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. Innova Asset Management is a Corporate Authorised Representative of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357 306.