The Association of Superannuation Funds of Australia (ASFA) has warned about the consequences of several of the superannuation changes in the 2018 Budget.
One of the superannuation changes announced in the 2018 Budget is moving insurance in super to opt-in instead of opt-out for young people and some other members. ASFA warns that this change risks a number of unintended consequences.
“Insurance in superannuation is one of the most cost and tax effective options to provide protection, particularly for the young and low income earners,” said ASFA CEO Dr Martin Fahy.
“Many young people have dependants and financial commitments so in the instance of a tragic event occurring, particularly disablement early in life, having insurance in place is extremely valuable,” he said.
“ASFA’s view has been that trustees should retain the flexibility to provide insurance benefits that are in the best interests of what is commonly a like group of members with their own unique circumstances and insurance risks.”
Under another proposal in the 2018 Budget all inactive superannuation accounts would be transferred to the ATO, not just those accounts with less than $6,000 as under current rules.
“ASFA considers that rather than be transferred to the ATO, money should be reunited in active accounts because once they are sitting in consolidated revenue with the Government they are only earning CPI rather than market returns,” said ASFA in a post-Budget statement.
“There are legitimate reasons people may hold inactive accounts, for example taking time out of the workforce to care for children or family, or to maintain insurance coverage,” said Dr Fahy.
Update: the Government has released draft legislation for opt-in insurance and transferring inactive super to the ATO.
ASFA also took issue with announced Comprehensive Income Products in Retirement (CIPR) legislative changes. The Government intends to amend the SIS Act to “introduce a retirement covenant that will require superannuation trustees to formulate a retirement income strategy for superannuation fund members”, says the Budget papers.
“Choice and innovation in retirement products is important but funds should not be forced to offer products that may not be suitable for their members or have very limited take up,” Dr Martin Fahy.
Devil will be in the detail: FSC
The Financial Services Council (FSC) has also warned about the changes to insurance in super.
The FSC broadly welcomed the superannuation changes in the 2018 Budget, but warned that the opt-in insurance could lead to young people – particularly those with young families or in high risk jobs – “slipping through the safety net”.
“It will be incumbent on superannuation fund trustees, particularly those in the default system, to engage and communicate more effectively with their under 25 year old members to ensure they understand the implications of the policy change,” said the FSC.
“Younger Australians impacted by this policy should think hard about what insurance they need and make sure they are covered appropriately,” said FSC CEO Sally Loane.
The FSC noted there was a “tight” timetable for consultations on these “complex changes”, with only three weeks allocated.