Lawyers have welcomed a Federal budget announcement outlining sensible measures for opt-in insurance for young people, saying the proposed legislation preserved a critical default cover safety net whilst also ensuring retirement balances are not unnecessarily eroded.
Maurice Blackburn Principal Kim Shaw said the legislation would help preserve the budding but vulnerable account balances of younger super fund members, but expressed disappointment that legislative intervention became necessary after the industry failed to introduce appropriate protections through a compulsory code of practice.
“We have continued to support sensible measures to better tailor superannuation cover for young people that strike the right balance between providing the ability to opt-in to insurance cover if they wish to, whilst also ensuring those with multiple employers and super accounts don’t have their retirement balances eroded unnecessarily,” Ms Shaw said.
“In particular, the utility of death cover for younger workers who are less likely to have dependants has rightly been questioned and it’s important to stamp out unnecessary account balance erosion when a member’s retirement savings are just getting going.
“It will be up to superannuation funds to ensure that they communicate clearly with this cohort of members to ensure under 25s do opt-in should they have dependents and assets to protect to avoid any unintended consequences.
“We note also that similar opt-in provisions will apply to account balances below $6,000.
“Crucially, these new measures continue to preserve the invaluable role of default group insurance through an opt-out system more broadly, something that remains critical given Australia’s significant under-insurance problem.
“It is vital however that the Federal Government continues to maintain this balance – measures to protect retirement balances are important, but so too is ensuring people are appropriately insured, and our current default system coupled with these reforms achieves the right balance.
“We also welcome the proposal to cease cover after 13 months if no eligible contributions have been made – we continue to support this as a sensible step and timeframe that protects new parents in particular who may have stopped making contributions to their super while on maternity leave.
“We note as well that the ATO is being given the green light to ‘proactively’ amalgamate a person’s low balance, inactive funds into one fund.
“This will involve careful implementation, and we hope the ATO will balance its new found powers with some degree of consumer choice.
“It is important also that where members have multiple insurances and one is cancelled automatically, they are not left worse off, by only retaining inferior coverage to the cover being cancelled.
“The reforms announced through the budget by the Federal Government come as little surprise – the Government has always been clear that if the broader industry squibbed its opportunity to develop a binding and non-voluntary code of practice then Government would be left with little option but to look at a regulatory response to address issues facing the industry.
“Despite these warnings and countless concerns raised by stakeholders, the industry served up a code that had all the bite of a wet lettuce, leaving the Federal Government with little option but to take legislative steps to better support claimants,” she said.