At the end of 2018, the Morrison Government failed to strike a deal with the Senate cross-bench to pass a bill that would have seen fees for low-balance superannuation accounts capped at 3% and exempted fund members under the age of 25 from compulsory life insurance.
Last night, the Government struck a compromise deal with the Greens to pass part of its reforms, but not the abolition of compulsory life insurance for people aged under-25. From The Guardian:
The Greens amendments would continue opt-out life insurance cover for young workers and those with low balances, neutering one of the central planks of the original bill but retaining other provisions which consolidate lost savings.
The finance minister, Mathias Cormann, told the Senate on Thursday the Coalition would agree to the Greens’ amendments “to facilitate passage of this bill and allow key measures to come in by 1 July”.
Those include capping fees at 3% a year for accounts with balances of less than $6,000 and abolishing exit fees on all super accounts, which Cormann said would be “to the great benefit of all Australians”.
“Even if we can’t get 100% of what we want legislated – we secure the passage of what we can.”
Labor shadow Treasurer, Chris Bowen, gloated at the Coalition’s failure to exempt under-25s from compulsory life insurance:
Chris Bowen said that “after months of bluster the Liberals are about to announce a deal with the Greens to gut the centrepiece” of their legislation.
“They said it was vital to protecting young members’ super and now they are junking their own bill!”
So thanks to Labor’s intransigence, a sensible reform has been scuttled.
Remember, the Productivity Commission’s (PC) landmark 500-plus page report on Australia’s $2.6 trillion superannuation industry explicitly recommended abolishing compulsory life insurance for people aged under-25:
Current settings are more a function of history than considered policy design.
…many entrenched problems remain (and insurance accounts for over a third of member complaints against their fund)… Particularly for young workers — either with no dependents (in the case of life insurance) or low incomes (in the case of income protection) — insurance is poor value and does not meet their needs…
Additional actions are required to weed out poor value policies — insurance should only be provided on an opt-in basis to members under 25, and cover should cease for all members on inactive accounts after 13 months, unless the member explicitly chooses otherwise.
Whereas The Grattan Institute argued that compulsory insurance is unnecessarily eroding super balances:
…unnecessary insurance erodes Australians’ super balances by $1.9 billion a year.
The government’s Protecting Your Superannuation Package Bill fixes these problems by making life, disability and income protection insurance opt-in for people under 25. Most under-25s don’t have dependants, so life insurance is inappropriate for them. Under the bill, insurance will start only once there is $6000 in your super account (typically after a year’s full-time work), to reduce the number of people who are double-insured. These reforms will substantially reduce the costs of superannuation, ultimately boosting people’s super balances when they retire…
The Protecting Your Super bill will stop millions of Australians paying for insurance cover they don’t need.
Labor has no reason to gloat on this issue. It has let Australians down by endorsing the life insurance gouge and placing industry rent-seekers ahead of younger Australians.