A casualty of the tumultuous last sitting days of Federal Parliament was the failure to pass the “Protecting Your Superannuation Package” Bill, but a sensible compromise is still needed.
Failure to pass a controversial Bill designed to overhaul group insurance means that multiple accounts and "zombie policies" remain a thorn in the super sector's side, but this also allows time for the major parties to come up with a more sensible compromise, ensuring the continuation of valuable and affordable life insurance in super.
One of four super Bills put before Parliament after the Federal Budget, the "Protecting Your Superannuation" Bill included measures to remove default insurance for superannuation fund members until they reach 25 years of age, as well as accounts under $6,000 and inactive accounts with no superannuation contributions for 13 months.
The Bill also placed a cap of 3% on fees on small accounts, banned exit fees and strengthened inactive account consolidation.
The start date for the new measures was to be July 1, 2019, but without sufficient cross bench support, the Bill was withdrawn from the list for debate and is now in limbo, at least until Parliament resumes on February 12, 2019.
In October Assistant Treasurer Stuart Robert said it was his “hope and indeed prayer” that the super package, which would require restructures of key group insurance arrangements, would be “finalised by the end of November”.
The failure to reach agreement on the Bill will mean that the problem of multiple superannuation accounts and zombie duplicate insurance (e.g. offsetting income protection benefits) will continue to erode workers’ retirement incomes.
With upwards of 10 million multiple accounts, the Productivity Commission in its interim report on superannuation in May 2018, found that workers’ retirement incomes are being unnecessarily eroded by administration fees and by insurance premiums for duplicate policies which would never respond.
The Bill had early support
The Bill initially had seeming widespread support, passing the House of Representatives and was referred by the Senate to the Economics Legislation Committee for an inquiry.
The majority of the Committee, which included the Greens representative, recommended that the Bill be passed with no amendments.
The Labor members published a minority report noting significant concerns expressed by stakeholders and flagged that they would consider amendments to improve the insurance arrangements.
However, when the Bill returned to the Senate in August 2018, it did not make the sitting list until the last sitting period before the Christmas break.
In response to concerns raised about workers in high-risk occupations losing valuable insurance cover, the Government announced it would allow for employees in prescribed “dangerous occupations” such as police, truck drivers, farmers and concreters to continue with default insurance cover even if under 25 years of age, or with active small accounts.
However, the Labor opposition circulated amendments which extended the inactive account period to 16 months to accommodate women returning from maternity leave. It also allowed for super funds to apply to APRA for an exemption to offer default insurance cover to protect the insurance arrangements of members who were in “physically demanding” jobs; eg, including hospital workers instalment.
It also flagged an extension of the start date to 2020.
For their part, the Greens tabled an amendment which carved out the default insurance arrangements in the Bill entirely, perhaps to allow for further discussions.
Opposition sees account consolidation as a priority
This problem does need urgent attention and it is heartening that the opposition spokesperson, Claire O’Neil, has agreed with the government that this is a priority.
Shadow treasurer Chris Bowen told Investment Magazine in November he “understood what the government was trying to achieve” and was “sympathetic to that intent, but I think there are unintended consequences”.
“If a fund has been lazy and just has insurance in there, it’s not a particularly great deal for the members,” he said. Why should the members be forced to have it? Because the funders use their purchasing power to get a really good deal for members and premiums that are pretty low with a good product. Do we really want to be forcing people out of that?
There were undeniable problems with the Bill that did need addressing. These include the loss of insurance cover for those in higher risk occupations and those with active small accounts which would particularly impact on vulnerable workers such as indigenous Australians, new migrants, casual workers and women returning from maternity leave who often have small accounts.
There should be enough common ground between the amendments proposed by both major parties, to come up with a sensible compromise which ensures the continuation of valuable and affordable life insurance in superannuation whilst protecting against inappropriate account erosion.
If such a compromise can be found, it will be crucial to allow the superannuation and insurance industries enough time to negotiate new group insurance contracts which accommodate the changes and implement the necessary administrative and disclosure measures.
The July 1, 2019 start date currently in the Bill is now more than ever, far too short a time frame and would undoubtedly lead to higher premiums and implementation costs.
Insurance in superannuation operates to top up the retirement incomes of workers whose working lives are cut short due to disability or death. It is an important part of the retirement income system in Australia and is a buffer against welfare dependence.
Many of the Protecting Your Super measures address problems that have developed over time, and with appropriate amendments will maintain and improve a system that has historically delivered affordable and valuable life insurance to millions of Australians who would otherwise have none.
Berrill & Watson Lawyers
This article was originally written and published in Investment Magazine.