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.
The Grattan Institute similarly 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.
In February, the Morrison Government’s plan to make insurance within super ‘opt-in’ for people under the age of 25 was withdrawn after failing to reach an agreement with the Greens. However, the Coalition is seeking to again pass the legislation with the help of senator Jacqui Lambie, which has prompted strong lobbying efforts from life insurers, industry super funds, and the union movement. From The Australian:
Those opposed to the laws are an odd-bedfellow alliance of some of the world’s largest life insurance companies, including Japanese multinational TAL and Hong Kong-based giant AIA Insurance, and Australia’s most powerful unions, including the ACTU, the CFMEU, the Shop, Distributive and Allied Employees Association, and a slew of union and employer-backed industry super fund groups.
Consumer groups, independent think tanks and several industry consultants, along with the government regulator for the $2.8 trillion super system, are overwhelmingly in favour of the bill, which will help young savers without dependants or liabilities avoid balance-eroding fees.
“The self-interest of insurers is obvious, as there are hundreds of millions of dollars to be made selling products that people can’t claim on or don’t need it,” said Xavier O’Halloran, the director of Choice’s superannuation consumer’s centre. “For people under 25, insurance in super is often a junk product,” he said.
It’s easy to see why Labor wants to protect this rort. But why have the Fake Greens placed industry rent-seekers ahead of younger Australians?