Fake Greens scuttle sensible super reform

By Leith van Onselen

Legislation passed by the House of Representatives yesterday will give the Australian Taxation Office more power to consolidate low-balance and inactive superannuation accounts. It will also cap fees on accounts with balances of less than $6,000 at 3% and will ban exit fees.

However, the federal government’s plan to make insurance within super ‘opt-in’ for people under the age of 25 was withdrawn under an agreement with the Greens. Including this reform measure would have led to estimated fee relief of $3 billion, according to the Grattan Institute, whereas removing it is expected to result in fee relief of only between $1 billion and $2 billion. From The AFR:

“If superannuation has done nothing else, it has provided affordable life insurance to a much greater number of Australians,” Greens treasury spokesman Peter Whish-Wilson told the Senate.

“The original bill sought to pick apart the provision of life insurance through superannuation, without considering how it would impact on vulnerable people.”

The Productivity Commission’s 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 also 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.

It’s easy to see why Labor want sot protect the rort. But why have the Fake Greens placed industry rent-seekers ahead of younger Australians?

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Comments

  1. “the Greens had insisted on opt-out cover to protect vulnerable workers such as young blue-collar workers up ladders on construction sites because “nobody needs insurance until they need it”.” Kinda makes sense, the kids do end up doing a lot of the dodgy jobs etc…

      • @ Bradley, WorkSafe only covers injuries suffered at the workplace.

        @ jelmech, agree. The way group insurance policies work is that life and TPD are combined and not separable. Income Protection is a separate policy. Trauma insurance cannot be combined with superannuation. The problem is that the legislation aims to exclude all types of insurance for under 25s (including IP) rather than assessing what type of insurance is needed most and ensuring it is retained at a default level.

        FWIW, life insurance only benefits those that are left behind. I know a low to middle income family who lost their 23 year old son to a stabbing. The little life insurance he had helped pay for his funeral costs.

    • Kids also end up doing a lot of stupid things, like jumping off piers, driving cars into trees, or coming off their skateboard. They may not die, but if they get disabled, then a modest amount of insurance can be a big help to them and their family.

      • For my super at least, Total Permanent Disability (TPD) insurance is separate to life insurance. I’m 28 and don’t have any dependants, so the last 10 years of life insurance that I don’t think I’ve been able to cancel is just money down the drain. I’d have kept the TPD though if I had a choice.

    • Even StevenMEMBER

      That’s what compulsory workers comp insurance is for.

      Why does a <25 year old need life insurance?

  2. The Greens lost all credibility when they rejected legislation to introduce a price/tax on carbon (followed up, some years later, by their rejection of legislation to re-introduce the indexation of fuel excise).

    When it comes to strategy and adherence to their core principles, they’re a shambles.

    It’s a pity, because many people cant stand the LibLab duopoly, but cant reasonably favour the Greens either.

    • The Greens lost all credibility when they rejected legislation to introduce a price/tax on carbon (followed up, some years later, by their rejection of legislation to re-introduce the indexation of fuel excise).

      From memory, they were pretty clear that they opposed the carbon pricing model because it was a market-based construct that would inevitably end up as a financialised plaything, rather than a simple, straight, effective and more difficult to game, tax.

      I seem to recall the decision about whether to support re-indexing was split nearly 50/50 internally, as well.

  3. Super is such a rort. I was a student in early 2000s. I worked several part time jobs + a couple of casual jobs. I never had much Super. Maybe $6k after a few years.

    I went away in 2007 until 2013 living in Europe. When I returned I decided to consolidate all my Super. Except 1 fund with about $1000 in it was now empty. Poof gone like that. All eaten up in fees. Now sure I should have been more proactive in managing it. But in your 20s are you really thinking about retirement?

    I certainly wasn’t and the funds made it so difficult to get your money out with endless forms etc.. that it was only when the MyGov site made it easy to click a few buttons that I managed it.

    • Yep. Forget about the insurance tinkering, scrap the whole useless scheme. Total rort, for most people the best thing they can do is own their own home at retirement – instead Keating gave us this cr8p and stupidly over-priced housing.

    • Also, Gav, the change they made to restrict the cap, so say in 30 or so years until you retire and find you don’t have enough. I’ve got no idea what we’ll need as a family, but I don’t want to go anywhere near a Centre Link office for a pension. I’m working my butt off with that fear. It seems each government comes in and messes with super so we’re really not going to know what target wealth we should be saving.

      I was the same as you and found that AMP screwed me over big time with fees and over 16 years I averaged approx 2% and my AMP adviser who never contacted me got a fortune probably when we went through all the statements. I complained to the RC, but they haven’t replied yet. I’m just lucky that bringing back my US and EU pensions recovered some of my AMP losses, but we’ll never get back what they took. I also have a bunch of other super here and same deal it was f all. I have to take some responsibility, but until the last few years I trusted these people. As a family we had my super, my wife’s, and a uni fund with AMP and the worst was the uni fund.. 28k in and 13k out. At the end of the day even paying taxes on interest I’d have been better off with a saving account for most of that time.

      On this post it only goes to show how irrelevant the Greens are IMO.

  4. Not a believer in Insurance. Sure it can give peace of mind and financial protection when sheet happens. Life is risky. Seems like such a waste of money to me. Especially when the mongrels make it so hard to claim.

    There has to be a better way to mitigate financial and physical risk. Maybe not. Just wondering.

    • Of course there is. Comprehensive public services like healthcare and welfare you can actually live off.

      Or “socialism” as people who’d prefer the FIRE industries screw you over would call it.

      • Mutuals (and credit unions) are a fine middle ground as they eliminate the incentive of stock insurers (and banks) to treat their clients as prey for the benefit of predatory, third-party shareholders.

        The neoliberal era opened the door for stock insurers to replace mutual insurers, with predictable results.