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Every little bit helps

Small changes to super will make a big difference

June 2018

We've got a pretty good superannuation system in Australia, but it's not without its flaws. And one of the biggest of these is the way that insurance in super works.

MySuper funds – the funds you're put into by an employer if you don't make an active choice – must provide life and total and permanent disability cover by default. Some funds also provide income protection insurance.

There are some great advantages to this. It provides insurance to lots of workers who wouldn't otherwise have death or disability cover, and people aren't screened individually for risk, which generally makes it easier to get insurance.

But these benefits are only worth it if they outweigh the costs. And for some people that's just not the case.

There are lots of young people paying for death cover. But death cover will only pay out if you have dependents. If you don't have a partner or kids, you're being charged an awful lot for a policy that delivers no benefit.

Some people are paying for income protection insurance through their super while they're unemployed. But if you don't have an income to protect, the insurer won't pay out if you become injured or sick.

And then there are the many people with multiple super accounts who don't know where these accounts are, let alone that they're being used to fund insurance premiums.

What most irks me is that the people who lose out the most from these arrangements are the most disadvantaged people in the super system – younger workers, people in casual or insecure work, women – people who are more likely to have low super balances or end up with multiple default accounts.

The super industry had a go at fixing this through a new code on insurance in super, but the end product was a dismal failure. It will do nothing to address the issues for young people, people with low balances or those with multiple accounts.

That's why we're glad to see the government step in to address the problem. It's proposing an end to default insurance for people under 25, those with balances of less than $6000, and people with inactive accounts. For these groups, insurance will become opt-in rather than opt-out, so they can choose insurance within super if it benefits them.

These might seem like small changes, but Treasury estimates they'll wipe out $3 billion in premiums. That's a lot of money going back to people's pockets.

Alan Kirkland, CHOICE CEO
Twitter: @AlanKirkland