Reform to cut super fund insurance policies

A government reform will make it easier for Australians to opt out of life insurance payments made by their super funds.

The government will unveil changes today to give Australians greater control over their retirement savings amid new figures showing nearly 50,000 workers have five or more superannuation funds, each paying separate life insurance policies.

A key element of the package will be to empower consumers by making it easier for Australians to opt out of automatic life insurance payments made by their super funds — an arrangement that ­affects at least 10.9 million people.

This group represents more than two-thirds of all superannuants and, of these, at least 2.7 million — or 24 per cent — have more than one superannuation account with insurance. The government is concerned that growing numbers of people are paying for ­insurance they do not need and are having their retirement savings unnecessarily eroded.

Figures obtained by The Australian show that just over 2 million people have two super accounts paying insurance.

Another 486,500 people have at least three accounts funding different life insurance policies, while 127,400 people have four accounts paying insurance.

The government is concerned that about one in five young ­people aged under 24 with ­insurance in superannuation already have multiple insurance policies — a figure that rises to 28 per cent for those aged between 25 to 44.

Minister for Revenue and ­Financial Services Kelly O’Dwyer believes that the process for opting out of insurance — which is ­already automatically provided under the existing law when a new default super account is opened — is too complicated for members of some funds.

The Australian understands the government will consider options that could allow more individuals to opt out over the phone or online instead of having to write in ­requesting an end to the insurance payments.

According to Treasury figures, superannuation funds collected $8.1 billion in insurance premiums for the year ending June 2016 — equating to 16 per cent of all employer superannuation contributions received that year.

While the cost of a single ­default life insurance policy within the super system has an average premium of about $180 a year, the cost — especially to younger Australians — is amplified by having multiple accounts.

Some individuals could be ­receiving more in insurance than in super contributions.

To build the case for its changes, the government has estimated the impact of having up to five separate superannuation ­accounts all paying for insurance — warning that this situation has the potential to devastate retirement plans.

It has seized on the example of a median-income blue-collar worker who earns an average $65,000 a year who has five different funds with insurance. Over the working life, this individual could lose up to 45 per cent, or $256,000 of their balance to ­insurance premiums and fees by the time they reach retirement age.

As part of the reform package, the government is expected to toughen the enforcement obligations which apply to superannuation funds and which require them to ensure that members are not losing out.

Many super-fund members are unengaged with the system, with the government’s reform package expected to provide greater oversight of whether funds are properly fulfilling their responsibilities.