Both the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA) have voiced concerns about some provisions in the Government's latest round of super reforms.
While FPA head of policy and professional standards Ben Marshan said the FPA broadly supports the measures in the Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019, he argued against turning all life cover to opt-in for members with low-balance accounts.
He said that even though "disengagement from the superannuate can lead to the erosion of their superannuation by insurance premiums ... it is an indisputable fact that Australia generally has an underinsurance issue which is in some way mitigated by the default superannuation system."
Specifically, Marshan said the importance of total and permanent disability (TPD) cover is being "discounted by this policy."
Marshan said TPD cover was particularly important because even though younger people may not have dependents, "if they have an accident or can't work, government allowances may not be sufficient to support them and provide the care they require for a decent quality of life."
Younger super members may also be providing support for parents or carers, have some level of personal debt and may have "commenced a small business with liabilities."
"The FPA also notes that insurance cover gets more difficult to obtain as you become older," Marshan added, "since people are more prone to exclusions loadings or not qualifying as they get older. "
As a result of this, the FPA has recommended that TPD insurance remain an opt-out policy "to ensure protection for younger superannuants from unforeseen consequences."
In a separate submission, AFA general manager policy and professionalism Phil Anderson also noted the dangers of changing all cover to opt-in for low balances, adding: "We expect that one key impact of this bill is a significant decline in the level of insurance in the group insurance market, which is likely to push up the cost of insurance for all the remaining members."
"This will naturally impact the competitive position of group insurance," Anderson continued, "however it will also most likely push up the cost of all insurance, including retail advised life insurance.
"These life insurance reforms appear to come from the ideological view that it is better to save a larger number of people a small amount of money, rather than protect a smaller number of people in the event of a life changing insurance event. This is the opposite of the underlying principle of insurance, and a factor that we think requires much more debate."
Where do you stand on the issue of opt-in group insurance arrangements?
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