Warning on super insurance change

Drew Cratchley
(Australian Associated Press)

 

A federal government move to make superannuation-based insurance optional for young people has drawn warnings it could leave them without cover if they are injured.

Making super-based insurance, such as death, income, and total and permanent disability cover, opt-in rather than a default measure was among a suite of changes announced in Tuesday’s budget.

However the Association of Superannuation Funds of Australia says the move will put young people at risk.

“Insurance in superannuation is one of the most cost and tax effective options to provide protection, particularly for the young and low income earners,” said ASFA CEO, Dr Martin Fahy.

“Moving to an opt-in model puts insurance coverage at risk for this segment.”

Financial Services Council CEO Sally Loane also said moving from the current opt-out model to opt-in could result in people who need cover “slipping through the safety net”.

The federal government says this measure will help protect the retirement savings of young people and those with low balances by ensuring their super is not eroded by premiums.

Also included in Tuesday’s changes to super is a ban on exit fees charged to people trying to close unwanted superannuation accounts.

People who have failed to keep track of their superannuation will also benefit from a new cap on some fees and new tax office capabilities that will allow them to be automatically reunited with lost or inactive accounts.

The federal government will cap passive fees on accounts with balances below $6,000 at three per cent from July 1, 2019, and all exit fees will be banned.

The Australian Taxation Office is also getting more power to gain control of inactive super accounts with balances below $6,000, allowing it to combine the lost funds with a person’s active account.

This will send an estimated $6 billion of super back to 3 million Australians in 2019/20.

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