Josh Frydenberg aims to test ALP’s reform mettle

Josh Frydenberg will test Labor’s appetite to reform the union- and ­employer-backed industry fund sector.

Treasurer Josh Frydenberg. Picture: AAP

Josh Frydenberg will today resurrect government legislation that clamps down on a $2.6 billion life insurance fee gouge on young Australians’ superannuation savings in a bid to test Labor’s appetite to reform the union- and ­employer-backed industry fund sector.

The move puts the government on a collision course with Labor, which has tried to exempt union- and employer-backed industry funds that manage the savings of workers in high-risk occupations, such as construction, from the measures.

The Morrison government struck a deal with the Greens last week to consolidate close to five million lost and inactive “zombie” member accounts, which forced the Coalition to split legislation aimed at ending a number of superannuation fee rorts.

While the Greens baulked at supporting the insurance measures, which seek to end the automatic charging of life insurance for savers under 25 years of age unless they opt in, Labor sought to give the Australian Prudential Regulation Authority the power to carve out workers in high-risk ­industries from the insurance measures.

The government will use any Labor resistance to argue that it is in thrall to the unions, saying that the opposition’s proposed amendments would have undermined the intent of the bill, which is aimed at ensuring that young savers have the ability to amass ­significant super balances without insurance fees eroding nest eggs.

In some cases, insurance sold in super — where 70 per cent of Australians obtain life insurance — has been found to potentially short-change some workers as much as $600,000 by the time they reach retirement, according to a report by actuarial firm Rice Warner.

The firm has found extreme cases like a 21-year-old in a heavy manual occupation would lose up to 34 per cent of their account balance over their working life because of the high rates being charged for life insurance cover.

The Treasurer said the government’s revived bills would protect Australians from paying premiums for insurance “they don’t want, need or even know they have”.

His bill, which reintroduces measures announced by former fin­ancial services minister Kelly O’Dwyer in last year’s federal budget, will apply from the start of Oct­ober and knock off about $2.6bn in revenue for the life insurance sector — equal to $7 million a day paid by Australian super members.

“The government is putting the interests of members, not insurers or funds, first,” Mr Frydenberg said.

About 2.5 million Australians are being charged insurance on unintended duplicate super accounts, 10 per cent of which are held by young savers.

The Productivity Commission found fees charged to customers with multiple accounts could reduce retirement balances by about half a million dollars.

Labor’s amendments to carve out high-risk workers were supported by a number of large industry funds, but Treasury raised concerns the proposed powers for APRA would be unwieldy and open to gaming by super funds.

A large degree of life insurance claims are related to mental health conditions, and many claims are made on injuries that take place outside work, where state-based injury-cover schemes operate.

Industry Super Australia has endorsed the Labor amendments as a way to protect high-risk workers from being uninsured.

The Grattan Institute estimates Labor’s amendments would cost consumers and deliver the industry about $400 million a year.

“Parliament is failing workers with superannuation. And this time it’s Labor and the Greens who are doing it,” Grattan Institute fellow Brendan Coates said.