KPMG is concerned the Budget announcements surrounding the removal of default insurance in super for people under the age of 25, plus inactive accounts and small balances will damage the overall system for relatively little benefit.
Adam Gee, KPMG Superannuation Advisory Partner said: “Given the Budget move also includes inactive accounts and small balances, as well as the under-25s, this will have a significant effect on the industry. We would estimate that the impact for inactive members alone could result in a 30 percent increase in premiums across the whole industry, given the average fund has an active member ratio around 68 percent.
KPMG’s report for the Insurance in Super Working Group last September showed overall, the default group insurance in super system produces substantial benefits both for members and Australia as a whole.
Adam Gee added: “Our modelling showed that the current system facilitates greater insurance coverage for a larger part of the population, which helps to reduce Australia’s long-standing under-insurance issue. Many more people are covered, and to a much greater degree, than if they relied on government support. Death benefits also allow the surviving spouse to carry on working rather than having to leave the workforce and look after children – an important societal and economic benefit.
The impact of the removal of default cover for under 25’s on the remaining insured members in superannuation funds must also be considered. As superannuation insurance is a provided via a ‘group’ pooling arrangement, the removal of younger lives can only increase the overall risk of the whole insurance pool. As such, this removal is likely to result in an increase in insurance premiums for the remaining members, which is a surely not the intended outcome”.
As funds continue to grapple with the implementation of the Insurance in Superannuation Voluntary Code of Practice and the impact that this will have on the default insurance provided through superannuation for many Australians, the Budget announcements are likely to add further complexity and will have broader ramifications than appear to have been considered.”