The Federal Government has introduced a bill into the Senate, “Protecting Your Super”. It proposes a number of changes to superannuation in Australia.
We’ve written about this and shared our views on two previous occasions:
- Federal Budget sees large numbers of Australians losing valuable insurance cover through Super
- Default insurance in Super for account balances less than $6,000 under threat
Our views continue to be aligned with Consumer Action Law Centre (“CALC”), the Financial Rights Legal Centre (“FRLC”) and Financial Counselling Australia, in particular, with regard to the proposal in the legislation that default insurance be removed from superannuation accounts with balances below $6000 should only apply to inactive accounts and not to active accounts.
There is a significant cohort of people over the age of 25 who will not be eligible for default insurance cover under this proposal, either because their superannuation accounts have very low balances or because they are new entrants into the Australian workforce and joining their first superannuation fund; therefore, they have had insufficient time to build their fund balance.
This includes people like:
- indigenous Australians with limited work histories;
- new immigrants;
- single mothers or parents entering or returning to the workforce after maternity/paternity leave;
- people with disabilities who have limited work histories;
- casual workers with limited work histories or problematic employer compliance with superannuation obligations; and
- people with work histories in the Gig economy or other self-employment or independent contract arrangements.
Low Super balances would mean that such people would be ineligible for default insurance cover for upwards of two years or more, depending on the level and regularity of their income and when they accrue sufficient superannuation to hit $6000 after deduction of administration fees and taxes. Further, when their balance does hit $6,000, they need to proactively apply for insurance; something we fear will go by the wayside.
Many people from such vulnerable communities work in physically demanding or high-risk occupations and their only opportunity to obtain affordable insurance cover would be through group insurance in superannuation. If they are locked out of default insurance cover for a significant period of time, they could be struck down by a disability or die without any insurance to top up their meagre account balances and thereby they (or their dependents) would almost certainly be reliant on Centrelink income support.
Whilst we agree that small accounts could be unnecessarily eroded by insurance premiums, this is really only true of inactive accounts. Indeed, there have been many examples in the media of such accounts reducing to nil with a combination of administration fees and insurance premiums.
However, active superannuation accounts fed by ongoing Superannuation Guarantee contributions will in all likelihood grow and not be eroded by insurance premiums to nil. If there are significant periods of inactivity, that would be protected by other laws which are designed to minimise the erosion of small account balances.
Accordingly, we strongly endorse the recommendation of CALC and FRLC that the bill should be amended to exempt active accounts under $6,000 from the removal of default insurance.
If you disagree with the Government’s proposed changes for default insurance in Super, we encourage you to lobby your local Federal Member of Parliament and let them know your thoughts.
Today’s blog author is Principal at Berrill & Watson, the Super Lawyers, John Berrill.