Minister for Financial Services Kelly O'Dwyer

Despite heavy lobbying from the country’s biggest superannuation fund, AustralianSuper, and others, a Senate committee has approved the federal government’s plans to overhaul life insurance without changes or delays.

The Senate Economics Legislation Committee recommended on Monday that the set of budget proposals known as the Protecting Your Superannuation Package be passed with no amendments.

Opposition to the legislation, in its current form, has come from AustralianSuper, consumer group Choice, life insurance giants AIA Australia, TAL and others. They had requested carve-outs from the bill, which was referred to the committee for review at the end of June.

Minister for Revenue and Financial Services Kelly O’Dwyer has long been concerned there are not adequate protections for super fund members with low-balance accounts, and has said that the Insurance in Superannuation Voluntary Code of Practice has not been sufficient to rectify this.

On Monday, the committee agreed and said “industry action has been slow and does not go far enough to protect members’ interests”.

Of primary concern within the industry was the July 1, 2019, start date for implementation, because of the need for funds to renegotiate terms of contracts with insurers.

Plans to make insurance opt-in for fund members under 25 and for accounts with balances under $6000, and to cease cover for accounts that had been inactive for 13 months, could lead to higher premiums and also might disadvantage those needing cover, industry stakeholders said.

KPMG said in May that super fund members might pay up to 30 per cent more for cover under the government’s federal budget measures.

Labor senators Chris Ketter and Jenny McAllister said they were “cautiously supportive” of the bill and acknowledged that the Productivity Commission was also preparing its Stage 3 report into the efficiency of the country’s $2.6 trillion super sector where it would consider the impact of insurance premiums on retirement incomes.

In regards to industry concerns about the start date and active accounts with a sub-$6000 balance, the Labor senators said the committee would “continue to evaluate these concerns and seek to find suitable amendments that will improve the legislation”.

Once the report is tabled in the Senate, the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 can move forward for debate.

Industry watchers said on Wednesday that how quickly this happens would depend, in part, on whether the government thinks the legislation would pass.

Labor’s minority report leaves open the possibility that it will call for amendments. It is unclear what the other parties will do, so there may be lobbying to be had,” an industry source sould.

In its review of the bill, the Senate committee, chaired by Liberal Senator Jane Hume, stated that: “It is apparent that the current balance between the protection provided and erosion of members’ benefits is not aligned for some cohorts.”

While the committee stated that it “recognises” that members who hold default insurance in super “may face increased premiums”, it added that this demonstrated the “substantial cross-subsidies inherent in the current system”.

“As reported in research by Rice Warner, members age 18 to 25 are, on average, paying three times their true premium,” the committee stated.

John Berrill, a principal at Berrill & Watson Lawyers said on Monday that the measure to remove insurance cover for people with active account balances under $6000 was not in the interests of super fund members, adding that July 2020, rather than the proposed July 1, 2019, was not “an unreasonable timeframe” for implementation.

“We note that the Labor senators have indicated in their minority report that they remain concerned with a number of measures, including the removal of insurance for active accounts under $6000 and the implementation timeframe,” Berrill said. “We remain hopeful that Labor can work with the government and cross-benchers to ensure that appropriate amendments can be made.”

In regards to concerns over the time for implementation, the committee stated: “While mindful of this concern, the committee consider that renegotiating  insurance contracts is not an unfamiliar process to superannuation funds, and believes this process should be achievable within the proposed timeframe.”

The committee also welcomes the introduction of a fee cap on low-balance accounts and a prohibition on exit fees, as proposed by the bill.

“The committee notes the government’s estimates, based on the most recent data available, that these measures, combined with the rest of the package, will see members save around $570 million in fees in their first year of operation,” the committee stated.

Labor senators Chris Ketter and Jenny McAllister said they were “cautiously supportive” of the bill and acknowledged that the Productivity Commission was also preparing its Stage 3 report into the efficiency of the country’s $2.6 trillion super sector where it would consider the impact of insurance premiums on retirement incomes.

In regards to industry concerns about the start date and active accounts with a sub-$6000 balance, the Labor senators said the committee would “continue to evaluate these concerns and seek to find suitable amendments that will improve the legislation”.

Alice Uribe is the editor of Investment Magazine’s print and digital platforms. Uribe has been working as a journalist, editor and digital producer for more than 10 years.