The country’s largest superannuation fund will stop automatically signing up younger members for insurance, in an industry-first attempt to slash costs from unnecessary cover.
As pressure mounts to prevent insurance premiums from eating into super balances, AustralianSuper will no longer put members under 25 into death and total and permanent disability policies as a default.
AustralianSuper is taking steps to stop younger members’ savings being eroded by insurance premiums.
It says the change could result in members having an extra $9000 in their balance by the time they retire at 65.
The move is likely to up the pressure on other funds to examine whether their younger members’ interests are being served by the system of default insurance – whereby members pay for cover unless they make the conscious decision not to.
AustralianSuper group executive of membership Rose Kerlin said the fund had examined in detail how younger members were being served by insurance arrangements, amid concerns from parents about balances being eroded.
Among the fund’s 150,000 members who are under 25, only 20 TPD claims were paid out each year, she said, and many of these payments were not going to the people such cover is intended to protect.
“AustralianSuper has made this decision in the best interest of our members,” Ms Kerlin said.
“People under 25 starting out in the workforce need to begin building a base for their retirement savings. Given that they are often on relatively low incomes, the fund does not want to see undue account erosion because of insurance that may actually be of very limited value to them.”
Millions of members are automatically signed up for life and total and permanent disability insurance through their super fund. This insurance is issued on an “opt-out” basis, but many people are not aware they are paying for the cover. Commonwealth Bank this month also supported moving to an “opt-out” model for members aged 18-21.
Life insurance is intended to protect a member’s dependants if they die, but Ms Kerlin said the fund’s analysis found only 10 per cent of death claims had gone to financially dependent spouses, partners or children.
Ms Kerlin said the changes would mean a member who joined the fund at 15 would save $600 in insurance premiums by the time they turned 25, when insurance becomes “opt-out”.
“That will compound over your working life, and when you retire at age 65, you get around an extra $9000 in your retirement balance,” Ms Kerlin said.
The fund will still allow young people to purchase life insurance, but they will have to make the deliberate choice to do so. Members will also get reminded about this type of insurance if they have a major change in their lives such as having children, getting married or taking out a mortgage, the fund said.
Financial services minister Kelly O’Dwyer has expressed concern about over-insurance in super, and an industry working group report this year said default insurance could cost 50¢ to $20 a week, depending on the fund and the member base. Many members also have multiple policies spread across funds.
The Insurance in Superannuation Working Group is working on an industry code of practice, expected next year, but AustralianSuper believes it is going further than what this code will recommend, such as limits on premiums for automatic insurance.