A casualty of the tumultuous last sitting days of Federal Parliament was the failure to pass the Protecting Your Superannuation Package bill, but a sensible compromise is still needed writes director at Berrill & Watson Lawyers, John Berrill.
Failure to pass a controversial bill designed to overhaul group insurance means multiple accounts and “zombie policies” remain a thorn in the super sector’s side, but this also allows time for the major parties to come up with a more sensible compromise, ensuring the continuation of valuable and affordable life insurance in super.
One of four super bills put before Parliament after the federal budget, the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 included measures to remove default insurance for superannuation fund members until they reach 25 years of age, as well as accounts under $6,000 and inactive accounts defined as those with no superannuation contributions for 13 months.
The bill also placed a cap of 3 per cent on fees on small accounts, banned exit fees and strengthened inactive account consolidation.
The start date for the new measures was to be July 1, 2019, but without sufficient crossbench support, the bill was withdrawn from the list for debate and is now in limbo, at least until Parliament resumes on February 12, 2019.
In October Assistant Treasurer Stuart Robert said it was his “hope and indeed prayer” that the super package, which would require restructures of key group insurance arrangements, would be “finalised by the end of November”.
The failure to reach agreement on the bill will mean that the problem of multiple superannuation accounts and zombie duplicate insurance (e.g. offsetting income-protection benefits) will continue to erode workers’ retirement incomes.
With upwards of 10 million multiple accounts, the Productivity Commission in its interim report on superannuation in May, found that workers’ retirement incomes are being unnecessarily eroded by administration fees and by insurance premiums for duplicate policies.
The bill initially had seeming widespread support, passing the House of Representatives, and was referred by the Senate to the Economics Legislation Committee for an inquiry.
The majority of the Committee, which included the Greens representative, recommended that the bill be passed with no amendments.
The Labor members published a minority report noting significant concerns expressed by stakeholders and flagged that they would consider amendments to improve the insurance arrangements.
However, when the bill returned to the Senate in August, it did not make the sitting list until the last sitting period before the Christmas break.
In response to concerns raised about workers in high-risk occupations losing valuable insurance cover, the government announced it would allow for employees in prescribed “dangerous occupations” such as police, truck drivers, farmers and concreters, to continue with default insurance cover even if under 25 or with active small accounts.
However, the Labor opposition circulated amendments which extended the inactive account period to 16 months to accommodate women returning from maternity leave and to allow for funds to apply to APRA for an exemption to offer default insurance cover to protect the insurance arrangements of members who were in “physically demanding” jobs e.g. including hospital workers and storemen.
It also flagged an extension of the start date to 2020.
For their part, the Greens tabled an amendment which carved out the default insurance arrangements in the bill entirely, perhaps to allow for further discussions.
This problem needs urgent attention and it is heartening that the opposition spokesperson, Claire O’Neil, has agreed with the government that this is a priority.
There were undeniable problems with the bill that did need addressing, including the loss of insurance cover for those in higher risk occupations and those with active small accounts which would particularly impact on vulnerable workers such as indigenous Australians, new migrants, casual workers and women returning from maternity leave who often have small accounts.
There should be enough common ground between the amendments proposed by both major parties to come up with a sensible compromise which ensures the continuation of valuable and affordable life insurance in superannuation whilst protecting against inappropriate account erosion.
If such a compromise can be found, it will be crucial to allow the superannuation and insurance industries enough time to negotiate new group insurance contracts which accommodate the changes and implement the necessary administrative and disclosure measures.
The July 1, 2019 start date currently in the bill is now more than ever far too short a time frame and would undoubtedly lead to higher premiums and implementation costs.
Insurance in superannuation operates to top up the retirement incomes of workers whose working lives are cut short due to disability or death. It is an important part of the retirement incomes system in Australia and is a buffer against welfare dependence.
Many of the Protecting Your Super measures address problems that have developed, and with appropriate amendments, will maintain and improve a system that has historically delivered affordable and valuable life insurance to millions of Australians who would otherwise have none.
John Berrill is a director at Berrill & Watson Superannuation and Insurance Lawyers