Super insurance costs set to soar, KPMG warns

Removal of default cover set to have a big impact, accounting firm warns.

Super insurance costs to soar

Government changes to superannuation announced in Federal Budget 2018 will push up the cost of insurance for all others – and particularly women – by 26 per cent, according to accounting firm KPMG.

Super members with balances of less than $6000, members aged under 25 and those with inactive accounts will be the winners in the legislation that is currently working its way through parliament. In future, they will have to opt-in rather than opt-out as in the current system.

However, the changes will mean higher premiums for everyone else, KPMG noted.

In a report released yesterday, KPMG predicted that the higher premiums would have the biggest impact on women and low-income earners.

"We remain concerned that these changes may have significant unintended consequences to member retirement account balances," the report says.

Life insurers sold $12.1 billion worth of policies to Australian superannuation funds in the 12 months to the end of September 2017, The Australian reports. This was up from $11.5 billion a year earlier and accounted for half the life insurance industry’s gross sales.

Actuarial firm Rice Warner said pre-budget that a quarter of superannuation fund members were seeing their savings whittled away as trustees charged fees for unwanted life insurance on idle and forgotten super funds.

In some cases, insurance products sold in super had short-changed workers by as much as $600,000 by the time they reached retirement, The Australian report says.

KPMG says the percentage of the workforce with what is called ‘group life cover’, which includes death, total and permanent disablement and income protection, will drop by 50 per cent as a result of the changes.

Removing default cover for under-25s would lead to an increase in average age and therefore risk within the insurance pool, the report explains.

Super changes that will take effect from 1 July include:

  • the ‘downsizer contribution’, which allows individuals aged 65 years and over to make non-concessional contributions of up to $300,000 (or $600,000 for couples) to their super from the proceeds of selling their main residences. This applies only if the home was owned for 10 years and is not sold before 1 July
  • the catch-up, which allows individuals with a total superannuation balance of less than $500,000 to carry forward and contribute any unused concessional cap amounts for up to five years.

In other super news, the Australian Tax Office (ATO) has alerted retirees with self-managed super funds to beware of emails that appear to be from its office.

The email features the ATO’s letterhead and an address similar to that used in official ATO correspondence. The scammers ask people to complete an online ‘tax form’ through a link that contains malware.

The ATO says there are several telltale signs the email is fake, including that it doesn’t have a @ato.gov.au sender email address, even though the sender may look similar. Other signs include poor grammar and that the client is not specifically named.

This scam alert follows email scams from March to September 2017, and a phone scam alert in December last year.

Fighting the good fight is the Notifiable Data Breaches (NDB) scheme, which kicked off in late February and requires agencies, organisations and certain other entities to provide notice of a data breach to the Office of the Australian Information Commissioner (OAIC) and affected individuals.

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    COMMENTS

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    26th Jun 2018
    9:26am
    Silly argumument
    Those who want the insurance should have to pay for it
    Why should others subsidize their premiums
    TREBOR
    26th Jun 2018
    10:47am
    I suspect the argument here is over the rising costs of premiums and why that is so (read excessive profit before people), and the actual cost that will impose on superannuation accounts - and particularly those of the lowest paid in the land.
    Adrianus
    27th Jun 2018
    9:25am
    TREBOR, one may ask why KPMG has a vested interest and where they get the 50% drop out rate?
    If KPMG's argument is accurate, then it is further proof that this 'group life insurance' is somewhat of a scam. They are inferring that 50% of members insured don't want or need the cover. Further reason for the government to push ahead with the changes.
    Why should people be forced to buy something they don't want, don't need, and statistically proven are highly unlikely to use?
    TREBOR
    26th Jun 2018
    10:46am
    Why 'particularly women'? Oh - sorry - because they're being slotted into the top spots in the corporation as a matter of policy and will soon be out-stripping men in incomes while doing fewer hours as usual.
    Knows-a-lot
    26th Jun 2018
    11:59am
    Yep - men are the Disposable Sex; women the sacred cows of the 21st century.
    niemakawa
    26th Jun 2018
    2:11pm
    Special creatures are they not? Full of hot air.!!!!!!!!!!! Women have never had it so good and get far too much publicity about some perceived discrimination.
    Triss
    26th Jun 2018
    5:38pm
    Nobody ever does research do they? It’s not that long ago that women were paid a lot less for doing the same job as a man, they weren’t allowed to vote or become a politician they weren’ t allowed into certain university courses and when they completed their courses they weren’t given a degree. Teachers and police women had to leave their jobs if they got married, and the list goes on. Yes it’s swung too far over but it will swing back and become sane again.
    MICK
    26th Jun 2018
    11:18am
    Higher fees? Go tell. Maybe the government will need to sack all union directors from Industry Funds and that will change the insurance fees?
    Given the size of the superannuation industry you'd think it could provide its own insurance arm and run this at cost. Apparently not possible and more money sucked out of super. An ongoing problem for retirees.
    Adrianus
    26th Jun 2018
    11:18am
    I can understand Industry Funds being upset about this and making all sorts of threats to increase premiums, but lets be fair dinkum? Why did Labor want compulsory life insurance tacked onto workers super, whether they wanted/needed it or not? A young worker with no dependents gets $100,000s when he dies. That is financial abuse.
    So now all those members who don't need to spend money on insurance can opt out. Less numbers will push up premiums for those who need it but that's life.
    Anonymous
    26th Jun 2018
    11:23am
    Quite right Adrianus
    User pays is the way to go not socialist policies than makes everyone poor
    MICK
    26th Jun 2018
    11:34am
    Trolls supporting trolls. Funny. Normal government message of course. Never changes.
    Knows-a-lot
    26th Jun 2018
    12:00pm
    Thank God for socialist policies that support the poor and destitute. A pox on the Right.
    Anonymous
    26th Jun 2018
    2:56pm
    Yes you are right about that you always see socialists heading up the free hamper queue.
    TREBOR
    26th Jun 2018
    4:48pm
    The insurance is for death or permanent disability..... death benefit helps descendants and other parties such as parents, and disability permanent speaks for itself.
    roy
    26th Jun 2018
    5:03pm
    Well done MICK, you have haven't mentioned the Hitler word since 12.41 yesterday, congratulations but still can't resist the Troll word, sheesh.
    roy
    26th Jun 2018
    5:04pm
    MICK, I forgot to ask you how much the ALP pays you per post.
    Knows-a-lot
    26th Jun 2018
    11:57am
    Trust tghis incompetent Lieberal government to stuff yet another thing up.
    Old Geezer
    26th Jun 2018
    3:36pm
    More like they have fixed up a previous stuff up.
    TREBOR
    26th Jun 2018
    4:48pm
    That would be a first, OG.
    Old Man
    26th Jun 2018
    12:39pm
    There is insufficient information about the provision of life insurance associated with super. We are told that insurers sold policies to the super funds who then charged subscribers for the individual policy. What is missing is whether there was a mark-up on the passing on of the policies and, if so, by how much. As I have pointed out in this forum before, the cover I was offered by a super fund costing $1.00pw was available from an insurance company for a fraction of the cost. The best part of the legislation has to be the choice to opt in rather than opt out.
    Old Geezer
    26th Jun 2018
    3:35pm
    Life insurance should never have been part of super at all.
    Adrianus
    26th Jun 2018
    4:54pm
    OG, I disagree. Life and particularly Disability insurance can be a great solution to a young families risk position. It fits very well with the sole purpose act, which underpins superannuation's raison d'être.
    Old man, I agree with your point.
    When something becomes tax deductible it seems to become more expensive. Seems like some back room deals were made.?
    niemakawa
    26th Jun 2018
    2:12pm
    It is not compulsory to have insurance as an add-on.
    Old Man
    26th Jun 2018
    5:19pm
    No, you're right niemakawa but it has been automatic to have deductions taken out unless a subscriber opted out. I had to fill out forms for different super funds when I was working and on some it was not as clear as I would have liked in finding the opt out clause.
    Adrianus
    26th Jun 2018
    4:40pm
    Look, I know industry funds and Labor will oppose this legislation, but its a great win for the worker. A young worker with a small balance of less than $6,000 will not have to worry about unwanted life insurance premiums and fees eating away at his retirement savings and going into the pockets of greedy fund managers and board members. These low balances will have a cap on fees set at 3%.
    Rae
    26th Jun 2018
    5:42pm
    12 billion insurance policies for the current workforce seems a bit excessive. No wonder it is costing so much.
    I opted out years ago and kept my own insurance. Safer and cheaper.
    Cancelled all of it once I had no dependents.
    Rae
    26th Jun 2018
    5:48pm
    Sorry $12.1 billion in policies. Still seems like a lot of money for the size of our workforce. Somebody is making a lot out of it.
    niemakawa
    26th Jun 2018
    5:53pm
    It would be interesting to know the payout ratio.
    Rae
    27th Jun 2018
    8:19am
    Yes it would. It may be another of those "private business is best" ideology things where there are dozens of companies all offering a middle man job from one or a few reinsurers. The money would quickly be eaten up with costs.

    There is a point when competition actually adds far too much to the price.
    floss
    26th Jun 2018
    6:00pm
    Cost of living up wages on the way down the capitalist system must eventually fail.
    niemakawa
    26th Jun 2018
    6:13pm
    And replaced with what??
    Eddy
    26th Jun 2018
    10:11pm
    I suspect that insurance offered through super funds are way over the price of equivalent policies offered as stand alone policies. Anyone have information of relative costs.
    Adrianus
    27th Jun 2018
    9:38am
    Why would women be adversely affected by these super members cancelling their unwanted life insurance?
    If any single group of members were to be adversely effected, by a massive reduction in their group, it would be Aboriginals. Women have the highest life expectancy of any group of members don't they? Whereas, Aboriginal life expectancy is around 10 years lower than non-Aboriginals. Do actuaries take that into consideration? Just asking an honest question?


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